Submitted to: Dr. K. Rangarajan Submitted by: Joshil A K (Roll No 18) IIFT PGDBS Mumbai - BKC
IndiGo Airlines
Indias fastest growing Domestic Airlines
behind the combined low-cost and premium operations of Jet Airways The Centre for Asia Pacific Aviation (CAPA) expects IndiGo to take the top spot by 2015 Indias best On-time performance & least flight cancellations Carry the highest load factor of 89.40%
21.90%
20.00% 15.00% 10.00% 5.00%
5.00%
0.00%
2006 2007 2008 2009 2010 2011 2012
Industry Attractiveness
Competitive Strategy
Strategy Execution
Industry Attractiveness
Internal Rivalry
Industry Attractiveness
Substitutes
Low Threat
Very High Setup Costs Increasing Fuel prices Shortfall + High Cost of Skilled resources - Pilots
High Threat
Low product differentiation in basic services Low Switch Costs for Customers but high switch costs for Airlines To switch from full service airline to limited-service airline Open Sky Policy allows foreign Entrants
Threat - High
Fragmented Buyers
Competitive Rivalry
High Very little product differentiation in services Mature Industry Only Scope for growth by gaining other players market share No sense of brand loyalty amongst customers and can easily switch to other airlines
Rivalry - High
Availability of Substitutes
Low
Indirect substitute are Railways but not powerful as Airlines score highly in the travel time Travel by Airlines a Status symbol
High
However direct substitutes are other LCC since switch cost is low between airlines, threat of substitutes is high
Industry Attractiveness
Given the economics, the avg. returns and the history of the industry and the five forces , it is low to moderately attractive
Strategic Position
External Environment
Internal Environment
Strategy
Buoyant Economy
Air travel is been transformed into a mode of mass transportation and is gradually shedding its elitist image
Allow import of ATF, we feel that the duty differential between sales tax (averaging around 22-26% for domestic fuel uplifts) being currently paid by airlines on domestic routes and import duty (8.5%-10.0%) is an attractive proposition for airlines
Kingfisher Losses, Flight cancellations & unable to pay to their suppliers, salaries & Taxes
Air-India Losses,Govt Intervention, Unreliable service, Old fleet of aircrafts, Frequent strikes crew & pilots
Business model
Due to change in passenger profile, business class & first class seats have suffered declining demand, many companies have been forced to introduce low-cost fare options
Strong Financials
Debt-free company Profitable company
Strengths
Image
On-time No cancellations
Financial position
It puts enormous strain on the company to maintain its position in the industry while running a smaller fleet
Weakness
Product breadth & Depth
Positioning
Limited Passenger service Low price tickets Point to Point routes Frequent & Reliable departures
Indigo, 21.90%
Go Air, 7.50%
Indigo Strategy
IndiGo - Strategy
Cost
Uniqueness
Cost Leadership
Differentiation
Focused Differentiation
Is IndiGo Successful?
Fastest Growing Domestic Airline Co.
Youngest Domestic Airline Co When IndiGo entered the arena they had to compete with mature competitors; recession world-over & spiraling costs due to sharp increase in crude oil prices
Indigo Airlines has been one of the airlines which has been eating away market share from its
IndiGo has won the following awards for its excellent service across the Indian airspace Best LCC by the Airline Passengers Association of India (2007) Best LCC at the Galileo Express Travel Awards (2008) CNBC Awaaz's Travel Award for best low cost airline(2009) Safety Excellence Award by Rajiv Gandhi International Airport (2009) Most Admired Travel Product of the Year 2009 by SATTE (2010) Best Domestic Low Cost Service Airline for the Year 2010 by Travel Agents Association of India (TAAI) (2010) Safety Excellence Award by BIAL (2010) Skytrax Central Asia's best low-cost airline award (2011)
Strategy Implementation
Indigo has reported a Load Factor of 75.7% when the Industrys average was 65.6%
Load factor for a single flight can also be calculated by dividing the number of passengers by the number of seats
Load factor represents the proportion of airline output that is actually consumed
Arithmetic of Profitability
Greater Value
Lower Cost
All the differences between companies cost arise from hundreds of activities
Cost is generated by performing activities Cost advantage arises from performing particular activities more efficiently then competitors, similarly differentiation arises from the choice of activities and how they are performed
IndiGo outperformed its rivals by establishing a difference; it created greater value to its customers at lower price
Hence arithmetic of Profitability automatically followed Delivering greater value allowed them to charge higher Greater efficiency resulted in lower average costs
Turnaround
16 min gate
Trained Pilots
Regular Training
Cost reduction
Fuel efficient engine To reduce its cost of holding inventory of components, IndiGo has done a tie-up with Air France under which the French airline will stock components required by Indigo. In this way, the Inventory will not be in Indigos Books. IndiGo says it spends less than 1% of revenue on marketing Point-to-point & no connections with other airlines
Fuel Efficienc y
Cost Reducti on
for baggage administration and direction to connecting flights They go several times a day the same relative short route. So no additional costs for staff
Cost Advantage
Using paint which overall weighs 50 Kgs less Lightest passenger seats in India which weigh only 12.8 Kgs Avoiding the in-flight services
No Free meals
Individually these savings are negligible on their own but collectively, It has been helping Indigo to cut on
The lesser the time taken at the airports, the more the airplane can fly and earn more revenues
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
Improve Efficiency
Indigo has a fleet of 19 Airbus 320s
They intend to receive 81 more similar planes by 2016
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
Hence all the above advantages result in reducing the cost and improving efficiency
Strength
Indigos fleet makes up approximately 6.5% of
Indias combined fleet size and comparing this figure with the market share of 21.90% Shows that Indigo has been successful in attracting customers away from other airlines
Any competitor can imitate any other airlines activities. Any airline can buy the same planes, hire same people, train the same way and match the menus and ticketing offered by other airlines
Trained Pilots
Regular Training
Its competitive advantage comes from the way its activities are fit and reinforce one another
Fit locks out imitators by creating a chain that is as strong as its strongest link
IndiGos activities complement eachother in ways that create real economic value One activities cost is lowered because of the way other activities are performed Similarly one activities value to the customer can be enhanced by a companies other activites
IndiGo Outlook
IndiGo has the potential to become a global low-cost
carrier, provided it can tide over the current slowdown. If it has the cash to sustain itself for another two years, IndiGo surely will be one of the big players in the low-cost space globally with its expected fleet size of about 100 planes by 2016. At the moment, little is known about IndiGo's financial health because it is not listed on the stock exchanges and, therefore, does not have to put its profit and loss statement in the public domain every quarter, though it is certain the company is in the red like all other Indian carriers. IndiGo has hardly advertised and indulged in brand building activities. Its fast growth has been solely due to word of mouth and repeat customers.
They should indulge in brand building exercises.
STOW - Analysis
S-O Strategies Introduce continuous learning program Pursue market growth opportunity Develop marketing strategy to focus on time-conscious business travelers Improve Operational efficiency and shift the productivity frontier outward to make it increasingly difficult for the competitor to copy S-T Strategies Defer Delivery of New Aircraft Continue to successfully hedge fuel prices by importing Focus on Employee retention Develop promotional schemes to tempt consumers procure tickets from the Airline website directly to avoid competition from other low-fare airline W-T Strategies Create a Pilot training program for CAT-III pilots W-O Strategies Expand to International markets Create a shared services program with competitors Target competitor Pilots (Kingfisher; Air India)
Thank You