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IndiGo Airline: Strategy Presentation

Presentation by: Suddhwasattwa Mukherjee

Worked for Ernst & Young LLP for 8 years as a


management consultant professional in the Advisory
Services (2008 2016)

Working with ITC Infotech in the


Business Consulting Group (2016 onwards)

Associated to Indian Institute of Foreign Trade


(IIFT) and IIM-Lucknow through various
July 2016 programmes
Introduction to IndiGo AirlineFew key statistics
Air Costa Vistara
Air Asia Air Pegasus
0.9% 1.31%
1.72% 0.14%
GoAir
Introduction about IndiGo
8.55% Trujet

0.14%
IndiGo, headquartered in Spice Jet
Gurgaon, India is the largest India Domestic 11.63% IndiGo
airline in terms of passengers Passenger 2015 36.69%
flown with market share of 36.69% Annual Market
as of February 2016. Jet Group
share by Airlines Air India
22.48%
It was set up in early 2006 by 16.45%
Rahul Bhatia of InterGlobe
Enterprises and Rakesh Gangwal, IndiGo Air India Jet Group SpiceJet GoAir
a United States-based NRI.
Air Asia Air Costa Vistara Air Pegasus Trujet
InterGlobe holds 51.12% stake in
IndiGo and 48% is held by On Time Performance in 4 Metro Cities (%)
Passenger Load Factor (%) Year: 2015
Gangwal's company Caelum Year: 2015
Investments. 100 85.2 82.4 87 87.4
80 79.2 76.5 76.3 SpiceJet 49.6
80
IndiGo began its operations on 4th Air India (Dom) 52.1
60 45.4
August 2006 with a service from
40 Jet Group 63.7
New Delhi to Imphal via Guwahati.
20 Go Air 65.8
The airline currently operates a IndiGo 73.3
0
fleet of 109 planes and offers 679 IndiGo Air India Jet JetLite SpiceJet GoAir Air Air Asia Vistara
flights a day. Airways Costa 0 20 40 60 80

Case Study: IndiGo Airline Analysis and Presentation by Suddhwasattwa Mukherjee


Our understanding about IndiGo AirlineThe Growth journey

2011 - 2012 2013 - 2014 2015 - 2016

IndiGo replaced the state run IndiGo was the second fastest growing In 2015, IndiGo placed an order of 250 Airbus
2011: A320 Neo aircraft worth $27 billion, making
flag carrier Air India as the top
Market share
17.3% low-cost carrier in Asia behind
third airline in India. Indonesian airline Lion Air. it the largest single order ever in Airbus
history.
In 2011, IndiGo placed an Indonesian
order for 180 Airbus Fastest 2015:
320 Neos aircraft in a deal 2011: Growing US$27
250 Airbus
worth US$15 billion which Billion
180 A-320 US$15 A-320 Neos
pushed up the percentage of Deal
Airbus Neos Billion Aircraft
Airbus aircraft in India to 73% 2nd
Deal
Fastest
As of 2012, IndiGo was expanding rapidly and was the only profitable airline in Growing
India. Largest single order
in Airbus history
Replaced Kingfisher as the 2nd largest airline in India in terms of market share. Took delivery of 9 Aircrafts in 2013
IndiGo strongly adheres to a low-cost model, buying only one type of aircraft and
keeping operational costs as low as possible along with an emphasis on In August 2013, the Center for Asia 37% IndiGos Market share in Feb
punctuality. Pacific Aviation ranked IndiGo among 2015
the 10 biggest Low-cost carriers in the
IndiGo added a new plane every six weeks and sometimes even world.
faster. 9.4% IndiGos Net Margin FY 2015
Largest
August 2012, IndiGo became the largest Within Top 10
2012: biggest LCC in
airline in India in terms of market share
(27%) surpassing Jet Airway, 6 years after Market share 27% the World IndiGos IPO opened in
INR 3200 Cr October 2015
operations commenced.

Case Study: IndiGo Airline Analysis and Presentation by Suddhwasattwa Mukherjee


Competitor Landscape MappingIndian civil aviation sector

Airlines

Parameter Jet Group

2015 Domestic
Maximum
Market share 22.48% 16.45% 11.63% 8.55% 1.31% 36.69% market share
(Passenger number)

No of years in
operation
24 70 11 11 1 10

Fleet Size 116 109 34 21 10 109

Destinations 68 84 41 22 17 40
Maximum
Not making Not making Not making US$ 1.5 US$ 190
Profit - Profit
Profit Profit Profit million million

Tailwinds Air India InterGlobe


Parent Company SpiceJet Wadia Group Tata Sons
Private Limited Limited Enterprises
Maximum flight
Daily flights 300 488 306 140 87 679 operation with a
smaller fleet size

Case Study: IndiGo Airline Analysis and Presentation by Suddhwasattwa Mukherjee


Porters Five Forces in the Industry environment analysis for IndiGo AirlineForces
shaping up the competitive environment of Indian civil aviation sector
Low Switching Costs
High
Limited Incumbency advantages
Some Demand-side benefits of scale
Easy access to Distribution channels
High Threat of New
Easy entry of Foreign Carriers in the International Routes where High
Entrants IndiGo operates -- Dubai, Bangkok, Muscat, Singapore, Kathmandu
Govt. Regulation / Indian Civil Aviation Policy - key entry barrier
Bargaining Power of Suppliers Set-up cost, fuel cost and resource availability -key barriers to entry Bargaining Power of
Regional Carriers start-ups Buyers

Aircraft and Engine manufacturers are both Buyers are highly fragmented
concentrated Oligopolies Suppliers like
High
Very little scope for differentiation between competitors products lowering their power
Dauphin,Dronier,Bell,ATR-42 do not meet and services closest competitors are Spice Jet, Go Air Low Switching cost for most of
the requirement to serve low cost Intra-Industry
Mature Industry with very little growth the customers as multiple
commercial aircraft carriers suppliers are Rivalry No brand loyalty demonstrated by customers alternatives are available
very few and they have good demand of Significant exit barriers Air travel is perceived as a
their products standardized product
Airports are local monopolies with significant Price sensitive as travel is a
power meaningful share of
Airport services Catering, Handling, Medium and The number of customers who can afford air travel are increasing
day by day specially in the emerging markets where IndiGo is discretionary spending
Cleaning are also concentrated in a small Rising Substitutes are readily available
number of firms, but low switching costs operating
Technology for Web / Video conferencing is improving reducing in the form of railway and
Powerful Labor Unions especially when roadway transport in cases
controlling operations at Network hubs Availability of business travels
Railways is an alternative, but for shorter routes not a powerful where time is not a very critical
Limited number of Fuel suppliers Substitutes
substitute in longer routes for the time consumption factor across consideration
India where IndiGo operates
Direct substitutes are low cost airlines like SpiceJet, Go Air as
buyers switching cost is very low

Case Study: IndiGo Airline Analysis and Presentation by Suddhwasattwa Mukherjee


External environment analysis for IndiGo Airline using the P.E.S.T Framework

Political
Open Sky Policy / Deregulation (+)
Low Entry barriers (+)
FDI Limits (+)
International Travel Restricts (-)
Technological Economic
Modernized Airports (+) Growing middle class income (+)
Greenfield Airports (+) Consistent GDP Growth (+)
Better handling of Aircrafts, Hike in average income (+)
passengers (+) Growth in tourism (+)
Video Conferencing (-) Rising ATF Price (-)
Socio-cultural
Growing Middle class (+)
Domestic Leisure travel (+)
Foreign tourists (+) (+) Enabling Factors
Status symbol (+)
Security issues and terrorism (-) (-) Disabling Factors

Case Study: IndiGo Airline Analysis and Presentation by Suddhwasattwa Mukherjee


Internal Environment analysis for IndiGo Airline using S.W.O.T Framework

Brand awareness
Less product differentiation
Cost leadership High profitability and
Not present on too many routes
revenue
International absence (only select
High market share and growth rate
International routes at this point Dubai,
Hold on the domestic market
Bangkok, Muscat, Singapore, Kathmandu)
Advertising and marketing strategies
Investment in Research and Development
Experienced Business Units and skilled
workforce Strength Weakness

International market
Opportunities Threat
New products and services Changing Govt. Policies and rising labor
Middle class taking to the skies costs
Chartered flight services Plenty of new Low cost carriers to compete
Cargo services with
Increasing flight frequency Barriers to exit
Growth rate and profitability

Case Study: IndiGo Airline Analysis and Presentation by Suddhwasattwa Mukherjee


TOWS Analysis: Strategic analysis used to study the environment for IndiGo and its interior

1 2 3 4
SO WO ST WT
Increase domestic Going International Effective incentive Create a tie-up with other
destinations Expand to freight / cargo programs to prevent LCC players like Air Asia
Upgrade to Long-haul services talent drain for the Indian customer
aircrafts as per demand Diversify to chartered Sign anti-poaching base to provide last mile
Offering affordable flight services agreement with connectivity
international holiday Loyalty, rewards and competitors Offer business class
packages to the middle other customer retention Continue to successfully seats, continue
class travelers programs hedge fuel prices by innovation of value added
importing services while focusing
on cost optimization

Case Study: IndiGo Airline Analysis and Presentation by Suddhwasattwa Mukherjee


Internal analysis for IndiGo Airline using VRIO Framework

Resources and
Value Rarity Imitability Organization
competencies
Low Fares Yes Yes No Yes
VRIO analysis
for IndiGo Single type of Aircraft Yes Yes Yes Yes

Turnaround Time Yes No Yes Yes

Brand Name Yes Yes Yes Yes

1 2 3 4
Value Rarity Imitability Organization

IndiGo has created value IndiGo has the highest Even though IndiGo has In the last few years,
and increased its market market share in the Indian created much value in the IndiGo has become the
share by offering the lowest domestic Airline industry market and amongst its brand name in the Indian
fares. The way they do it is and it owes everything to customers, but many of its Airline Industry. It has
through having a single the low fare tickets it offers strategies like less hardly been ten years since
type of Aircraft which to the customers. The low turnaround time and using its inception and it has
reduces the overall average fleet age and single type of Aircraft are created a brand value
maintenance cost. single type of aircraft is a imitable. Thus, in the long through unique value
rarity in the Indian Airline run these differentiator will proposition and strategic
This arrangement also Industry. not be very effective for initiatives.
reduces the fuel cost indiGo
through fuel hedging

Case Study: IndiGo Airline Analysis and Presentation by Suddhwasattwa Mukherjee


IndiGos strategies at various levels

1
Operations Strategy

Functional Level Marketing Strategy


Strategy

Financial Strategy

Flexible options for purchase of


Range and Diversity food and beverages
2 3
No Refund
Corporate Growth
Lean Distribution System
Professional Airline Corporate Level Business Level
management Strategy Strategy Online Check-in
Strengthening
organizational structure Internet Sales
Well thought out Sales Office
salary structure Travel Agents

Case Study: IndiGo Airline Analysis and Presentation by Suddhwasattwa Mukherjee


Functional level strategiesIndiGos Strategy in Operations

IndiGos whole fleet consists of A-320-232 Domestic fuel taxes can be as high as 30 per cent along with an 8.2
1 aircraft while Air India, Jet Airways and Spice 4 per cent excise duty. As a result, fuel for Indian airlines accounts for
Jet use 10, 9 and 3 different makes of aircraft about 45% - 50% of total operating costs, compared to the global
respectively. average of 30%.
Single type of Fuel
Aircraft This result is in greater flexibility by making use IndiGos aircraft try to save fuel by using software to optimize flight
of the same crew from pilots to flight attendants planning for minimum fuel burning routes and altitudes and also by
to the ground force thereby cutting hiring, making use of latest fuel saving technology.
training and up gradation costs.

IndiGo operates over a lesser number of destinations than its


2 IndiGos is having only Economy class; they do 5 competitors but with a higher frequency - with a fleet of 78 planes for
not have to spend time, money and crew on 36 destinations while Spice Jet flies to 46 destinations with 58 planes.
privilege passengers. The network maps show that all IndiGo's destinations are connected to
Single Class - Effective at least two cities while most are connected to 3 or more destinations,
Economy Route whereas this is not the case with Jet Airways. This means Indigo can
They also don't need to maintain expensive
lounges at airports further reducing costs. Planning keep its aircraft in the air for a longer period of time and save up on
airport charges.

IndiGo has an average fleet age of less than 4 This also means that customers don't have to look for connecting
years. A younger fleet means less maintenance flights with other competing operators.
3 costs. IndiGo plans to maintain a lower fleet age
as all its aircraft are leased for a period of 5-6 6 IndiGo has a Power by the Hour contract with International Aero
Low average years.
Engines (IAE), which provides the engines that put the onus of
Fleet age Tightly framed performance delivery on the manufacturer. IndiGo has similar
This way they avoid the D-Check which is done
after 8 years of operation of an airplane. (A D- Maintenance agreements with Airbus, as well as with the vendors for other critical
check may take up to 2 months during which the Contracts: components. These contracts probably come at a premium but it
aircraft remains out of service.) means that IndiGo does not have to pull out planes from service for
repairs and also does not have to maintain a large inventory of spares.

Case Study: IndiGo Airline Analysis and Presentation by Suddhwasattwa Mukherjee


Functional level strategiesIndiGos Strategy in Marketing and Finance

Marketing Finance

1 1
Advertisement Little advertising spend.
Indigo has gone on record to say that the company
Debt
has practically no debt.
2
High reliance on word of mouth marketing in its
No Frills early days by establishing a reputation of being a
No frills airline which is always clean and on time.
Leaseback is a financial transaction, where one sells
an asset and leases it back for the long- term;
IndiGo advertised heavily when it started therefore, one continues to be able to use the asset
international operations and also when Kingfisher 2 but no longer owns it. The transaction is generally
3 was going bust, with catchphrases like 'Let the bad done for fixed assets, notably real estate, as well as for
times roll ... Fly Indigo in good times and in bad durable and capital goods such as airplanes and
times.' taking a dig at Kingfisher's tagline 'Fly the Sale and trains. IndiGo has been able to better leverage this by
Strategic good times. This move was criticized but it worked Leaseback: placing bulk orders for aircraft.
Marketing for IndiGo.
The result of these operational and marketing In 2005, when IndiGo did not even exist as an entity,
aspects is visible in IndiGo which has a market InterGlobe Enterprises placed an order for 100 A320s
share of 37% and the highest passenger load during the 2005 Paris Air show. This was also one of
factor of close to 90% compared to 77% of JetLite the biggest orders during the show. The company
and 81% of Spice Jet. This means better revenue again placed an order of 180 new A-320s in 2011 and
for IndiGo compared to its competitors. 250 A-320 Neos in 2015

Case Study: IndiGo Airline Analysis and Presentation by Suddhwasattwa Mukherjee


Corporate level strategies

Range and IndiGo operates 78 planes for 36 destinations - Higher frequency


Diversity

With innovative ideas like check-in counters for passengers with only cabin baggage so that instead of
waiting in lines, they can check-in with an IndiGo official with a handheld device, IndiGo is creating its own
blue ocean.
Corporate Growth
Engagement with various travel web-portals and collaboration with hotels has increased its social capital. E.g.
IndiGo gives 10% discount on the next travel booking if customers had stayed in any of the tie-up hotels.

Professional
IndiGo paid much attention to its corporate level strategies right since its inception. Its first CEO, Bruce
Airline
Ashby, landed in India 18 months before its planned launch.
management IndiGo Network

Strengthening
While most domestic airlines are cutting up their staff strength, IndiGo is speeding up its recruitment process
organizational
for more pilots, cabin attendants, and other supporting staff.
structure

Very Low compared to the Industry average - The usual scale for the industry is double the amounts here.
Well thought out
Contractual jobs, no commitment on the company's half whatsoever but requiring back breaking efforts in
Salary structure order to renew your contract every two years to keep the job..
check-in counters - handheld device

Case Study: IndiGo Airline Analysis and Presentation by Suddhwasattwa Mukherjee


Business level strategies
No Frills
Some of IndiGos passengers may prefer not to consume food & beverages when on board. There are those who
Flexible options for prefer to rest throughout a flight or those who prefer having their meals before flying off. Hence IndiGo comes up
with an arrangement where the guests have the flexibility to purchase food or beverages based on their requirement.
purchase of food
and beverages Guests who are pre-decided regarding their meal selection, can purchase food & drinks at an affordable price from
IndiGos website before the flight, of from the cabin crew during the flight.

Airlines waste a lot of money, time and resources due to refunds and rescheduling when guests do not show up for
No Refund a flight. Whether or not a guest shows up, the cost of flight to the airline is the same. LCCs are strict when it comes
to no show guests and do not offer refunds for missed flights. IndiGo follows the same approach.

Distribution costs are something that FSCs most often ignore. Very often, FSCs rely on travel agents and their sales
offices. Furthermore, FSCs tend to complicate their distribution channels by integrating their systems with multiple
Lean Distribution
Global Distribution Systems, which are very costly. LCC will keep their distribution channel as simple as possible
System and will cover the whole spectrum of the clientele profile. And at the same time, IndiGo has an established system to
sell their tickets to the most remote and technology deprived locations, such as in Myanmar.

Guests are highly encouraged to check-in online so they do not have to waste time lining up at the check-in counters
Online check-in at the airport. This helps IndiGo to improve efficiency and reduce congestion in the airport.

The bulk of sales (85%) are done via the airline's website, whereby the fares are paid using credit cards, debit cards
Internet Sales or via online banking. This is the most cost effective distribution channel.
Sales Office IndiGo establishes a sales office if they are confident the sales derived from the centre will be worth it.
Travel Agents Does not use travel agents and World wide reservation system allows IndiGo to save cost, reduce ticket price and
get more number of flyers
Case Study: IndiGo Airline Analysis and Presentation by Suddhwasattwa Mukherjee
Outcome of IndiGos strategy analysis: Critical strategic factors driving the success of the Airline

1 2 3 4 5

IndiGo ensured that its average fleet Buy, sell and lease back Fuel efficient planes leading Strategic planning Strategic approach to
age remains 4 years till 2032 strategy to lower operational cost for Neo based fleet increase its footprint

Well thought-out fleet strategy made 10 years Every month a plane goes out of Because of the 6 year With orders in place, IndiGo
Once all airplanes are delivered, lease back plan, with the is planning to increase its
back, and not something done a couple of IndiGos fleet and a new aircraft
IndiGo will not have a fleet of 530 next two-and-half years presence in the number of
months ago. joins, thus reducing the average
planes this is due to the buy, one-third of IndiGos cities it flies to - adding two
The last plane of the three bulk orders of 530 fleet age; the cost of maintenance
sell and lease back strategy. At fleet will be Neos, and in to three cities to its portfolio
aircraft that IndiGo placed will come in 2026 is also lower.
peak they will have 330 planes. the next 6 years it will every year. In the next eight
100 Airbus A-320 in 2005, 180 A-320 Neos in In 2011, IndiGo was the first
Once the order is placed the planes have an all Neo fleet. and half years it plans to
2011 and 250 A-320 Neos in 2015. customer for Airbus to order the
are sold to lessors at market price. have presence in 56
IndiGos bulk buying helped negotiate better new range of fuel efficient A-320
rates.
The planes are then leased back
Neo planes. Neos help in saving There is a straightaway airports compared to 33,
for the next six years which positive impact of 7% on now.
Gained right at the beginning this is netted 10-15% of the overall fuel cost.
against IndiGos rentals and brings the cost
means for the first six years IndiGo
Fuel makes up for 50% of a the companys bottom Regional flying is not on the
receives a plane every month. line because of the radar, and neither are
down. carriers cost.
Neos. smaller planes.

100
Airbus 2005 7%
A-320 10-15% 50% 33 56
180
Bottom line Growth Plans number of
A-320 2011
At peak, 330 Planes improvement Airports operated
Neos Fuel due to Neo
250 Fuel cost saving contributes based Fleet 3 Cities adding plan
A-320 2015 for IndiGo planes 50% of
every year
Neos Carriers cost

Analysis and Presentation by Suddhwasattwa Mukherjee


Key strategies and recommendation for IndiGo AirlineRelook at the current segmentation process

Existing segments (identified in Existing Segmentation Proposed Segmentation


case) not mutually exclusive
collectively exhaustive Corporate Consumer insights based on Reliability
interviews carried out by
SME Comfort
Agencies at various points
Need for segmenting based on Leisure Price
benefits sought-based on in- VFR Literature review Price-quality
depth literature review Student Service flexibility
Purpose-based segmentation Benefits-based segmentation

Outcome
Segment Description Favorability to Indigo
Target Segments
I need efficiency and Seek reliability, sensitive to delays, switch brands easily
punctuality High
Low price sensitivity Reliability
I want comfort Seek benefits from FFP, catering and flexibility Price
Low Price-quality
Price is most irrelevant
I am hard-pressed on price Personal benefits of minor importance
Medium
High price sensitivity
Next step
I am price-conscious and Seek mix of price and quality
quality seeking Low tolerance to delays, ready to pay premium for punctuality
High Analysing current
positioning w.r.t. new
I want flexibility across all High decision autonomy
offerings Low segmentation process
Hard to address due to multiple benefits sought

Case Study: IndiGo Airline Analysis and Presentation by Suddhwasattwa Mukherjee


Key strategies and recommendation for IndiGo AirlinePositioning strategy - Aiming that spot in
consumers mind
Promotion Strategy
Product Strategy o Observation
R Recommendations
Aim
Planning Phase
Improve Talkability
o Value-seeking Segment prefers booking hotels/cabs with flight tickets Customer Involvement

R Cross-sell ibis-InterGlobe Hotels (Group synergy)

Pre-flight Waiting Phase Channel: Social Media


Driver for Success : Volume of visitors
Most travelers buy beverages & light snacks at the airport-
o - Price is a major deterrent

R Tie-up with shops for a discount for IndiGo customers


Deals Contests

Post-travel Phase Deals for booking well CONTESTS like


before the travel date
o Booking cabs after flight adds to hassle Last minute deals through My IndiGoStory depicting
social media for increased and sharing awesome travel
Pre-paid cab booking at destination available before even boarding the flight interaction experiences
R - cuts down the hassle

Case Study: IndiGo Airline Analysis and Presentation by Suddhwasattwa Mukherjee


Key strategies and recommendation for IndiGo AirlineIdentifying Geographies for Growth

Macro-economic trends Future plans Industry trends LCC market Proposed airports
(Growth, industry, aviation (Geographic (Competitive (Players, competitor (Growth sectors & their
Region sector, ease of doing expansion, aircraft landscape, costs, moves) distances upon entering) Verdict
business, ATF prices deliveries) new sectors)
Addis Ababa, Nairobi,
Africa
Cairo, Morocco

Europe Istanbul, Brussels/Paris Not Now

Middle-East Dubai, Doha, Abu Dhabi

North America Atlanta, New York Not Now

Rio de Janeiro, Sao


Latin America Not Now
Paulo, Venezuela

South Asia Colombo, Dhaka

Hong Kong, Guangzhou,


North Asia
Shanghai
Bangkok, Singapore,
South-East Asia
Jakarta

Favorability for IndiGos next phase of growth


Case Study: IndiGo Airline Analysis and Presentation by Suddhwasattwa Mukherjee
Thank You

Presentation by: Suddhwasattwa Mukherjee

Email: mukherjee_suddhwa@yahoo.co.in

Phone: +91 9830135111 (M)