Table of Contents

Section 1.................................................................................................................... 2
Introduction............................................................................................................. 2
Porters Diamond Model.......................................................................................... 2
Indias Competitive Advantage in Airline Industry................................................3
Porters Industry Value Chain Analysis....................................................................7

Section 1
Introduction

Porters Diamond Model

The Diamond Model is an economic model which Michael Porter described in his book The
Competitive Advantage of Nations. The theory describes how locations turn into a factor in
making industries competitive. Different categories work together as a system to form the
diamond of national advantage. These factors act as a field for the industries to play and operate.

Factor Conditions:
The infrastructure and inputs that are required for a nation to have competition in an
industry are the factor conditions in the nation. It includes physical resources, capital,
infrastructure, human resources, and knowledge resources.

Firm Structure, strategy and rivalry:

This factor constitutes the conditions that a nation provides for a company to grow from
being created to becoming organized and managed properly. It also constitutes the nature
of already existing rivalry in the domestic market.

Demand Conditions:
It refers to the demand condition for the service or product provided by the industry in the
nation. The main attributes that define this factor are the size and growth prospects of the
market, the need of the buyers, and transferability of national demand to overseas market.

Related and Supporting Industries:

It represents the presence of other industries for support. These industries can act as
suppliers, distributors, etc. that can provide support of industrial standards.

Government:
An industry working as a either as a free market or under strict governmental control can
prove to be disastrous for the nation leading to everlasting corrosion of domestic
competitive abilities. So a government should act as a catalyst. It should act when
required and encourage industries to compete fairly. So company should work in tandem
with the government.

Chance:
Apart from all the above factors discussed above, there are some factors that a firm
cannot control. These factors are important because they can make or break a company
from gaining competitive advantage.

Determinants of
National
Competitive
Advantage

Indias Competitive Advantage in Airline Industry

Factor Conditions:
Human Resources:
Wages and Salaries of labor are lower than most other countries around
the world
Labors are of contractual nature

High population of young age group people with potential to learn the
skills required in airline industry but they lack in experience
Physical Resources:
Poor quality of raw materials
Raw materials and land supply are inconsistent
Power supply remains inconsistent and costly but of poor quality
Knowledge Resources:
Shortages in niche skills
Lots of mismatches in skill mapping to the work available
Capital Resources:
Investment in Research & Development is low but increasing every year
Taxation policies are complex in nature
100% FDI in aviation sector
Savings and investment rates are better
Airplane parts and engines are eligible for duty absolution when imported
for maintenance, repair or servicing of airplane used for planned
operations
Exemption under the Income Tax Act for infrastructure development
under Section 80 IA
Custom duty exemption is available for parts and testing equipment used
for repair, overhaul and maintenance of airplanes
Support to the AAI is provided by sanctioning budgets to develop and
improve airport infrastructure in the North Eastern States of India
Infrastructure:
Lack of good design facilities
Insufficient infrastructure and connectivity but improving
High lead time
Enormous port congestion
Plan to increase the number of operational airports to 250 by the year 2030

Firm Structure, strategy and rivalry:

The responsibility of developing, financing, operating and maintaining all the
public sector airports lie with the Airport Authority of India
DGCA, AAI, and AERA are key regulatory authorities in the Indian Airline
Industry
The cost of buying and leasing airplanes is high, which is a major barrier to entry
for a new player. Other costs include security and safety measures, customer
service and human resources
The impact of high cost to entry is reduced due to external financing or easy
availability of leasing option

 Some of the major players in the industry are Air India (1932), GoAir (2004),
Indigo (2006), Jet Airways (1993), SpiceJet (2005), AirAsia (2014), and Air Costa
(2013).
The sector has been segmented in the following way:

Domestic
Low Cost
Carrier
Segments in
Indian Airline
Industry

International
Passenger
Domestic
Full Service
Carrier
International

Demand Conditions
With more than 1.2 billion, India is second largest in terms of population
India has air markets penetration of 0.04 trips per capita in comparison to 2 in the
USA and 0.4 in China
India is one of the popular tourist spots in Asia
Indian market has huge young population
The middle class is growing every year. Middle income population is expected to
increase from 160 million in 2011 to 267 million in 2016
Continuous increase in the working women population
Average disposable income has increased over the years
Railway fare of 2nd and 1st AC tier are similar to the airline fares
Increasing gini index and hence uneven distribution of income among the
population

Related and Supporting Industries

The related and supporting industries for aviation industry consist of airports,
navigation information, air material, air traffic control, aviation fuel, airplane
production and maintenance of the industries that are related

 Hindustan Aeronautics Limited is a government controlled company with

around 19 manufacturing units and around 9 R&D centers across the country
Dynamatic Aerospace is a company that develops complex aviation structures
like ailerons flaps, slats, fins, rear fuselage, wing, etc.
Other such companies include Bharat Electronics Limited (BEL) and Taneja
Aerospace & Aviation Limited (TAAL)
A Composite Technology Park in Bengaluru to design and develop costeffective, eco-friendly, light-weight composite materials for the aircrafts
Hyderabad Aircraft Maintenance Company is one of the biggest third-party
airplane maintenance companies
GMR Group is a Bangalore based company that works for the development of
airports. The company has successfully developed several infrastructure projects
in India using Public Private Partnership
Air Works India Engineering Pvt. Ltd. works in the areas of aircraft
maintenance support, aircraft sales and contract
Airline turbine fuel is one of the most expensive in India. A cascade of taxes
increases the effective fuel prices

Government
Development of world class airports in Delhi and Mumbai using Public Private
Partnership and hence recognizing the need for involvement of private players in
development of infrastructure
Open sky policy, Air and Navigation Systems, AAI driving modernization of
airports, etc. are examples of the governments initiatives to focus on
infrastructure development and liberalization
Permission of 100% FDI for Greenfield Airport Projects under the automatic
route
74% FDI is permitted under the automatic route for existing airport projects. For
more than 74%, government approval route is required
Other FDI norms have been formed for ground handling services, domestic
scheduled passenger airlines, maintenance and repair, etc.
Duty exemption for aircraft engines when the engines or its parts are imported for
maintenance of aircrafts
Exemptions under the Income Tax Act for infrastructure development under
Section 80 IA
Exemption of basic customs duty for testing equipment and parts that are used for
maintenance, overhaul and repair of airplanes
Government Agencies that are involved in this sector are Directorate General of
Civil Aviation, Ministry of Civil Aviation, Bureau of Civil Aviation Security,
Airports Economic Regulatory Authority of India, Air India Limited, Pawan
Hans Limited, Airport Authority of India, etc.

Chance
Domestic and International Passenger traffic is increasing every year and is
expected to increase in the future as well
Jet Fuel and Crude oil prices has decreased a lot this year (2015) when compared
with last year (2014)
There is an expected growth in the world tourism and hence it will impact the
industry directly or indirectly

Porters Industry Value Chain Analysis

Porters Industry Value Chain Analysis is used to identify the activities inside the firm. It
recognizes the activities that are the most valuable ones for the firm. The company can then find
out the ones that can be improved to gain competitive advantage. This analysis gets the firm to
know in which activities does the company have competitive advantage and in which it doesnt.

Primary Activities

Inbound Logistics

Operations Outbound Logistics

Marketing & Sales

Firm Infrastructure

Human Resource Management

Procurement

Technology
Supporting Activities

Service

P
R
O
F
I
T

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