IndiGo Airlines

The aviation sector is one of the major economic drivers for prosperity, development and employment in a country. The rapidly expanding aviation sector in India handles about 2.5 billion passengers across the world in a year. Currently, India is the ninth largest civil aviation market in the world. India is expected to be amongst the top five nations in the world in the next 10 years.

But the Indian Aviation industry has been going through a turbulent phase over the past several years facing multiple headwinds. With the government allowing 49% of FDI in civil aviation recently there is going to be a lot of happenings in this particular sector.

So we as a group decided to focus upon one of the major domestic players in our civil

aviation industry i.e. IndiGo Airlines

Group C6

Group Members:

1) Aditya Khajuria (2012130)

2) Mallika Grover (2012151)

3) Raunak Arora (2012169)

4) Rohan Harsh (2012173)

5) Shreya Chaurasia (2012175)

6) Vinay Harinarayanan (2012184)

7) Vineet Shreshtha (2012185)

COMPETITORS AND THEIR MARKET SHARE:

The following are the competitors and their market share in the Indian market.

Data From FEB-2012. KFA has lost major part of their market share since then.

CORPORATE OBJECTIVE:

We believe that we offer the lowest fares by staying focused, which keeps our costs down without cutting corners or compromising on things that matter.

IndiGo is built for people with things to do, places to be, people to see - who don't want to waste time, money or energy in the process. By minimizing the cost/time/tension of air travel, IndiGo opens up a country full of opportunities. With IndiGo, you've got a billion reasons to fly! IndiGo incorporates the best hardware, software, interface design & personnel from around the world. 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. IndiGo focuses on doing one thing, and doing it well.

MARKETING OBJECTIVES:

Volumes and Profits

The domestic airlines carried 39.82 million passengers during January-August 2012, as against 39.63 million passengers during the corresponding period of previous year.The revenue on the domestic network increased by 33 per cent during April-August 2012 period as compared to the same period last year, presenting an increase of Rs 531 crore (US$ 98.33 million).Indigo posted Rs 650 crore profit in 2012 and is the only huge profit making airline in India.

IndiGo’s objective is to maintain the highest market share amongst the Indian Carriers. IndiGos current market share is 27 %. Having clocked a profit of over Rs66 Cr in the first fiscal, Indigo aims to achieve a profit of around 340 Cr by year end.

The passenger traffic has grown at the rate of 17-18 per cent in the last few years. According to an assessment of the overall outlook of the sector, the fleet of the commercial airlines is expected to touch approximately 1,000 aircraft in 2020.

The air transport (including air freight) in India has attracted foreign direct investment (FDI) worth US$ 438.39 million from April 2000 to June 2012, as per data released by Department of Industrial Policy and Promotion (DIPP). Foreign airlines carry 82 per cent of India’s air cargo traffic, which is projected to grow at 10-12 per cent rate over the next five years.

Time Frame

Having clocked a profit of over Rs66 Cr in the first fiscal, Indigo aims to achieve a profit of around 340 Cr by year end.

With a current marketing share of 27%, IndiGo aims to improve and keep growing so as to maintain its position at the top in the Indian market. It looks to achieve a market share of around 35 % in the next three years.

Customer retention

Customer satisfaction and retention is central to IndiGo’s success.

IndiGo incorporates the best hardware, software, interface design & personnel from around the world. 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. IndiGo focuses on doing one thing, and doing it well.

Situation Analysis:

MARKET DEFINITION

The airlines industry comprises passenger air transportation, including both scheduled and chartered, but excludes air freight transport.

Industry volumes are defined as the total number of revenue passengers enplaned (departures) at all airports within the country or region, excluding transit passengers who arrive and depart on the same flight code.

Porter’s 5 force analysis:

1. Threat of New Entrants

Product differentiation:

In low cost carriers, there is not much differentiation in the basic service that is being provided to the customers. Differentiation can only be achieved by Value Added Services. IndiGo provides check-in kiosks, stair-free ramps, and “Q-Busters”. Hence this argument works in favour of IndiGo.

Switching cost:

• The switching cost is not high. Customers can easily choose other low cost carriers.

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

In aviation industry the major entry barriers can be:

Government regulations:

• The government's open sky policy has encouraged many overseas players to enter the aviation market.

• Aviation was primarily a government owned industry. Due to liberalisation Indian aviation industry is now dominated by privately owned full-service airlines and low-cost carriers. Private airlines account for around 75 per cent share of the domestic aviation market.

2. Bargaining Power of Suppliers

• Any airlines in general face a duopoly of two major suppliers of aircrafts i.e. Airbus and Boeing. There are other suppliers like Dauphin,Dronier,Bell,ATR-42 but do not meet the requirements to serve the low cost commercial aircraft carriers, particularly IndiGo airlines. Fleet Forecast for the India-Region 2006-2011 shows that there will be approx. 85% growth in the order rate of air carriers

Thus, suppliers are few and thus in better position to bargain as they always finds customers for their aircrafts.

• IndiGo fleet comprise of Airbus-A320 and the switching cost is high due to the limited number of suppliers.

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

• There are only four suppliers for ATF (Aviation Turbine Fuel); IOC, Hindustan Petroleum Corporation, Bharat Petroleum and ONGC and since their number is limited, they possess more power.

• The proof of evidence for high power enjoyed by ATF suppliers lies in the fact thatthe ATF prices constitute 35-40% of the costs in India compared to 20-25% globally.

• The brand value of suppliers is high due to their less number and results in higher bargaining power for them.

• The airlines also face a threat of forward integration since the suppliers are in close contact and are familiar with the knowhow of the aviation industry.

• The suppliers are few and thus in better position to bargain as they always finds customers for their aircrafts.

3. Bargaining Power of Buyers

• Buyers in airlines industry are large in number and highly fragmented thus lowering their power .With the growing Indian economy and increasing low cost carriers, the buyers have increased and so have the growth opportunities.

• The switching cost is minimal since there are multiple alternatives available. It is not difficult to move from one airline to another or to switch to a substitute.

• Furthermore the players in the particular strategic group do have minimalistic differentiating points.

• Backward integration from the buyers end is very difficult and next to impossible.

4. Availability of Substitutes

The substitute for low cost airline company is the railways. But this substitute is not very powerful due to the following reasons:

• Customers use airline transport as it is convenient and saves travelling time. So trains cannot work as a substitute to save time.

• Secondly, many customers use airlines as a status symbol. So again, trains cannot substitute for prestige. So if we consider IndiGo airlines, the direct substitutes are the other low cost carriers like SpiceJet and GoAir. So in this case, threat of substitutes is high as the switching cost between low cost carriers is low.

5. Competitive Rivalry

The aviation industry is a highly competitive industry because of which it is difficult to earn high returns in this sector. Below are the major reasons for the high competition in the low-cost carrier airline:

• Aviation is a mature industry with very little growth. The only way to grow is by stealing away customers from competitors

• Suppliers of aircrafts are the same, i.e., Boeing and Airbus. Hence supplier’s bargaining power is high.

• Switching cost of customers is high for low cost carriers, i.e., there is no brand loyalty .Closest competitor of IndiGo is SpiceJet followed by GoAir. Below is brief description about each of them:

SpiceJet is a low-cost airline based in New Delhi, India. Spice Jet’s mission is to become India’s preferred low cost airline, delivering the lowest air fares with the highest consumer value, to price sensitive consumers. Its vision is to ensure that flying is no longer confined to business travellers, but is affordable for everyone and thus the tagline ‘flying for everyone’.

Spice Jet airways began its operations in May 2005. SpiceJet has chosen a single aircraft type fleet which allows for greater efficiency in maintenance, and supports the low-cost structure. It has a fleet of 6 Boeing 737-800 in single class configuration with 189 seats. SpiceJet's new generation fleet of aircraft is backed by cutting edge technology and infrastructure to ensure the highest standards in operating efficiency. Spice Jet currently flies to 11 destinations.

GoAir Airlines owned by Wadia Group, is a low-cost budget airline based in Mumbai, India. It has been showcased as “The People's Airline”. GoAir is looking at' commoditising air travel' by offering airline seats at marginally higher train prices to all cities in India. The Airline’s theme line is “Experience the Difference” and its objective is to offer its passengers a quality consistent, quality assured and time efficient product through affordable fares. GoAir's business model has been created on the 'punctuality, affordability and convenience' model. Go Air operates four A320 aircraft with a single class, 180-seat configuration, andplans to expand its fleet to 33 aircraft in three years.

Thus, we can summarize from above data that all the three players are trying to follow cost leadership strategy by bringing down the ticket rates to the minimum possible value. However, it is clear that, to sustain in this cutthroat competition, each player will have to come up with different strategies to improve the non price factors.

Macro Environment Analysis: Political

• Open Sky Policy

• Deregulations in different spheres

• Low entry barriers to attract new companies

• FDI limits: a) 49 % for airlines

b) 100% for airports

• Extensive airports development planned

Macro Environment Analysis: Economic

• Rising income of middle class

• GDP growth of more than 8% and expected rate in two digits in the near future.

• Average salary increase highest, 14% in the world

• Tourism industry growth: 6 % in 2009-11 on an average.

Macro Environment Analysis: Technological

• Modernization of Airports

• Better handling of Aircrafts, passengers & cargo

• Developing Greenfield airports with Corporate collaboration

Macro Environment Analysis: Social & Cultural

• Rising middle class:

o 1993 - 1999 : 39.5 to 56.7 million households

o 2005: 300 million households

o 2010: 400 million households (Estimated)

• Leisure travel increased by 15 % in 2009

• Number of foreign tourists in 2009-2010: 5.1million

• Status symbol to travel in plane. Glamour.

Macro Environment Analysis: Demographic

• Changed travelling pattern of consumer

• Highest percentage people in age group 20-25

• Educational environment being improved

• Shift towards nuclear family concept increases travel frequency

• Middle class income above Rs.90,000 pa (Source: NCAER)

• High energy cost. The cost of ATF in India for domestic airlines is almost double than that in the international market.

Aggregate Market Factors:

• Market Size• On 17 August 2012, IndiGo made history by becoming the first low cost carrier in

India to become the largest airline in India in terms of market share (27%), dethroning Jet Airways, which had held the position for many years. It has achieved that feat just 6 years after it began operations.

Growth• By early 2012, IndiGo had taken the delivery of its 50th aircraft in less than 6 years.

IndiGo is known to have placed the largest order in commercial aviation history during 2011, when Airbus won the US$ 15 billion deal for 180 aircraft. This deal pushed up the percentage of Airbus aircraft in India to 73%.

• In February 2012, IndiGo was expanding rapidly and was making solid profits, the only airline in India to do so. It had replaced Kingfisher as the second largest airline in India in terms of market share. IndiGo's strong adherence to the low cost model, buying only one type of aircraft and keeping operational costs as low as possible along with heavy emphasis on punctuality are said to be some of the reasons for its success even when the airline industry in India is currently going through a bad patch. IndiGo focuses on adding a new plane every six weeks and sometimes even faster. However, this rapid expansion had led to a scathing report by the DGCA in December 2011, which highlighted problems in the airline which could impact safety due to rapid expansion.

• Sri Lankan Engineering, a subsidiary of the Sri Lankan flag carrier SriLankan Airlines recently won the contract of performing heavy maintenance checks on 26 of the 50 Airbus A320-200 operated by IndiGo. Sri Lankan has been receiving contracts for the past 4 years to perform maintenance checks on IndiGo aircraft. IndiGo is believed to outsource its aircraft to SriLankan because of the unbearable tax imposed on the local MRO providers making them unfavourable when compared to the MRO providers in Sri Lanka.

Consumer Analysis

Indigo is a low-cost private airline in India. Since commencing operations in August 2006, it has established itself as one of India's leading airlines using its model of efficient, low-cost operations and by attracting customers with low fares. IndiGo is the largest low cost carrier in India and is India's largest carrier by market share as of August 2012.

India has seen rapid GDP growth for the past decade. This has led to the emergence of burgeoning middle class which aspires to air travel. Indigo primarily aims to attract these customers, as it says on its website, ‘For the individual on the Go, who values time and on-timeliness’. Being a low-cost carrier, all of IndiGo's flights have no Business class or First class sections. It offers only Economy class seating.

The aviation sector overall provides the following services:

1. People for business travel2. Cargo Services3. Charter Airways4. Leisure travel/ Holiday

IndiGo targets 1 & 4 as listed above. Being a low cost carrier, it has foregone charter services and operating on a Hub and Spoke Model to Tier-II & Tier-III cities cargo services are not very lucrative either.

IndiGo segments its customers on multiple basis.1. Geographic: Tier-I, Tier-II, Tier-III cities. IndiGo uses a Hub-Spoke Model

connecting smaller cities and towns to Metro cities.2. Demographic: Based on income, occupation and Education.3. Psychographic: Socioeconomic Classification, Lifestyle.4. Behavioral: Occasions, Benefit and usage rate. IndiGo offers loyal repeat customers

multiple discount schemes to avoid switching.

IndiGo operates to 33 destinations in India and abroad with 373 flights each day. Unlike most low cost carriers, IndiGo uses a hub and spoke model used by full service airlines where the airline flights to different destinations are routed through its hub.

By early 2012, IndiGo had taken the delivery of its 50th aircraft in less than 6 years. IndiGo is known to have placed the largest order in commercial aviation history during 2011, when Airbus won the US$ 15 billion deal for 180 aircraft. This deal pushed up the percentage of Airbus aircraft in India to 73%.In February 2012, IndiGo was expanding rapidly and was making solid profits, the only airline in India to do so. It had replaced Kingfisher as the second largest airline in India in terms of market share. On 17 August 2012, IndiGo made history by becoming the first low cost carrier in India to become the largest airline in India in terms of market share (27%), dethroning Jet Airways, which had held the position for many years. It has achieved that feat just 6 years after it began operations.IndiGo has Identified some of the circuits with demand for air travel and has been

expanding aggressively. They are

1. Buddhist Circuit: Kolkata, Bodh gaya, Patna, Varanasi2. Tamil Nadu: Channai, Madurai, Combaitore.3. Andhra Pradesh: Vijaywada, Vishakhapatnam4. Madhya Pradesh : Bhopal, Raipur, Indore5. Karnataka: Belgaum, Mangalore6. Punjab: Chandigarh, Amritsar.

All of these are connected to major Metro cities. This ensures visibility and awareness among customers. Many of the customers in these small cities are first-time air travelers, who impressed with IndiGo’s trademark hospitality and low costs become loyal customers.

Positioning

A right positioning has a major role to play in the success of any product/service.Here we can apply the classical positioning method. IndiGo has positioned itself as a low-cost no-frills carrier providing clean, hospitable services to and from all locations.

Indigo

POD POP

Other Airlines

A single passenger class.Single type of airplane to reduce training and service cost.No frills such as food, drinks and lounges.Emphasis on direct sales of tickets through internet.Employee working in multiple role.Unbundeling of ancillary charges to make the headline fare lower.

Value proposition of IndiGo: It consists of the whole cluster of the benefit the company promises to deliver. It is more than the core positioning of the offering. Some of the benefits indigo promises to offer are:

a) Safety: With its experienced pilots and crew members indigo promises to deliver safety. Moreover all its flight are new and well maintained. One type of airplane - brand-new Airbus A320s

b) Price: Indigo offers cheap flights as compared to its competitors. One type of fare – low.

c) Services: It offers to deliver a world class service with making the journey hassle free and smooth. One type of customer service – professional.

d) Honesty: One way to deal with delays and cancellations – honestly.

Objectives

Mission Statement: To be the best Airline in India by providing the following values to the customer:

-Affordable Fares

- On-time performance

- Hassle free Service

Strategies

Market Strategy

a) Be visible -go all out to project yourself as the Future Market Leader

b) Go Local - Connect with the Middle class

c) Focus on your Core Competencies and market them

d) Aim to compete with Railways in the long run

Pricing Strategy

a) Low Cost And High Quality of Service

b) Price to be differentiated with respect to days before the travel.

c) High seating density and load factor.

d) No frills such as free food/drinks or lounges

e) Targeting segments locally based on seasons and festivals

Promotional Strategy

Communication Objective

Indigo will be promoting the below three things majorly as part of its advertising programme-

On-time performance, Affordable fares and Hassle free passenger experience.

Advertisement Strategy

a) Hoardings at airports with focus on Best on time performance

b) Advertisement through social networking medium-Facebook,Twitter,YouTubeetc

c) Collaboration with Multiplexes in major cities to promote the airline and its special offers

d) Advertisement hoardings in multi-storeyed buildings and offices

e) Advertisements in magazines targeting Urban population

f) Sponsoring fashion shows, talent hunts, New Year parties etc

g) Collaboration with consumer banks, credit card companies, hotels, ticketing websites to promote special offers, discounts and cash back

h) Giving IndiGo promotion a local flavour by promoting in regional languages in respective sectors

i) Sending special offer details to frequent fliers by sms,email etc

j) Targeting foreigners in Tourist circuits

Profits

IndiGo is an anomaly in the Indian market – it is the only profitable domestic airline financial year ending 31-Mar-2012. The carrier is however, like its peers, feeling the pressure in a tough operating environment. The carrier would see a decline in FY2012 profits, with the results substantially impacted by high fuel costs.

Margins were under huge pressure because average price of fuel is now higher than what it was in 2009. There has been a growth in revenue and there is high probability of business turning profitable at end of the year. It will be much smaller profit than the previous year. The carrier reported an 18% increase in profit to INR6.5 billion (USD130 million) in FY2011 but expects the FY2012 result to be a "fraction" of this figure.

Value Chain

The IndiGo Advantage

a) Multiple Short haul point to point flights

b) Using only one type of aircraft to minimize Maintenance overheads

c) Lean Operating Strategy to maximize efficiency

d) Minimum turn around time, keeping Aircraft in air for most of the time

e) Employee welfare and resultant loyalty

f) Making Low budget flying a pleasant experience

 The IndiGo team uses all of its 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. IndiGo focuses on doing one thing, and doing it well. Thus, they have :

One type of airplane - brand-new Airbus A320s

One type of fare - low

One type of customer service - professional

One way to deal with delays and cancellations - honestly

Expected future strategies

IndiGo plans to increase frequency on domestic and international routes by end of 2012, including the addition of 12 new services, as it adds nine aircraft to its fleet by the year end. The carrier is also expanding its international footprint, with plans to double the size of its international operations this year, with its international growth aspirations gaining a boost earlier this month when India's Ministry of Civil Aviation decided to allocate 11 new international sectors under Bilateral Air Services Agreements (ASAs) to Indian scheduled carriers. IndiGo was allocated 84 services per week in summer and 41 services per week in winter totalling 125 services per week in winter 2012/13.

With the recent advent of the government to allow FDI in aviation, Indigo could look to get new technology and the investment it requires to expand rapidly from Foreign players like Qatar Airways, Etihad Airways, or NorthSouth Wales Airlines.