Pricing strategy of Indigo airlines
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Transcript of Pricing strategy of Indigo airlines
Pricing Strategy-Indigo Airlines
Prepared by Bhooshan Kanani
*Prepared for educational purpose only
Agenda
• Introduction to Aviation industry in India
• About Indigo airlines
• Competition Analysis
• Cost Leadership – The Pricing Strategy
• Success Factors
• SWOT Analysis
• Way forward to Indigo Airlines
Aviation Industry in India
• 1932 JRD Tata launched TATA Airline
• 1948 Air India International came in- being between Indian Govt. and Air India(TATA Airline)
• 1986 Private Sectors players permitted as Air taxi operators like Jet, Air Sahara etc.
• 1994 Private Carrier permitted to operate scheduled services
• 2003:Entry of low cost carriers
Indigo Airlines
INDIGO
Parent Company InterGlobe Enterprises
Category Indian Domestic Sector
Sector Airlines
Tagline/Slogan Go Indigo
USP On time performance, Lowest price
• Indigo is an Indian airline company headquartered at Gurgaon. It is a low cost carrier and the largest airline in India One type of fare - low
• Set up in early 2006 by Rakesh Gangwal and Rahul Bhatia, of InterGlobe Enterprises
• 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
One way – Indigo Way
STP
Segment Cost Conscious Passenger
Target Group Lower Middle Class/Middle Class
Positioning Low Cost No Frills
Existing players in Low Cost Carriers
Competition
Competitors
Jet Airways
Spice jet
Go Air
Air India
Comparison with competitors
Steps up price war & won
Challenge to Indigo
REF: http://www.financialexpress.com (posted on Feb 26, 2014)
Pricing StrategyCutting costs
• One service one fleet (63 Airbus A320s)
• Higher fuel efficiency
• Alliance with Airbus for maintenance
• Asset light leasing model
• IndiGo has 96 employees per aircraft; lean-and-mean vis-à-vis to Air India's 250 a plane
• Only Indian airline to adopt RNP approach: Fuel and cost savings; Faster turnaround at airports
• Gradual expansion
• Lower flight to market ratio
Pricing StrategyCutting costs
• Single Model of Aircraft
• Operate on Secondary Airport
• Hub & Spoke Model
• Fewer Employees per air craft
• E-Ticketing
• Single Class Configuration
• No In-flight Entertainment Systems
• Ancillary Revenues
Cost Leadership – Its Go Indigo way• War on Costs
• On an average, an IndiGo aircraft flies for around 12 hours a day, compared to 8 to 10 hours logged by most competitors.
• Aircraft operates with a minimum set of optional equipment, reducing costs of acquisition & maintenance, thereby keeping the weight of the aircraft lower and thus saving fuel.
• Indigo has broken up the job into small parcels like loading, unloading and cleaning with time targets and each of these is monitored. The team is trained to focus on its job. They have even turned around an aircraft in 14 minutes.
• Amongst the first to Select1 V2500 engines manufactured by Zurich-based IAE, which will help it cut fuel-burn by around 2 per cent.
Cost Leadership – Its Go Indigo way• Being no-frills as an added advantage for the airline, it takes
lesser turn-around time then full service carriers which cater food on-board.
• To reduce its cost of holding inventory of components, IndiGohas 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 Indigo‘s Books.
• The airline has trained its crews to de-plane the passengers in 6 minutes and unload the baggage in 10 minutes. It regularly achieves Turn around times of around 22-25 minutes(Industry Average being much more than 30 minutes).
• Using the lightest passenger seats in India - only 12.8 Kgs. Using paint which overall weighs 50 Kgs less.
Indigo's success can be attributed to certain things which has done differently as compared to others
1. Single type of airplane to reduce training and service cost
2. On time performance
3. High Passenger load factor – Flight occupancy percentage
4. One of the lowest Cancellation rate in industry
5. Lean Workforce
6. No frills such as free food/drinks, lounges
Success Factors
Point to Point Model
Single model of aircraft
Operate on secondary
airport
Single class configuration
No In-flight services
Fewer employees per aircraft
E-Ticketing
S.W.O.T Analysis
Strength:1. Low fares2. High Service Quality3. Operational Efficiency4. Customer Service5. Short haul flights6. Fuel Efficient Aircrafts7. On time departures8. Investment in technology9. Good advertising and marketing
strategies 10.Lowest attrition in the industry
Weaknesses:1. Less differentiation2. Short lived innovations3. Untapped domestic cargo
segment4. No established alliances5. Lack of product depth and
breadth6. Less routes than competitors7. Yet to establish in international
market8. No focus on business class
Opportunity:1. Huge untapped International
sectors should be explored2. Growing demand for low cost
airlines3. Increase the frequency of
existing routes4. Increase of long haul aircrafts
as per demand5. Indian market still under-
tapped6. Going regional - smaller cities7. Extension of the current
strategy8. Increase in middle class
population9. Increase in domestic tourism10. Booming air cargo business
Threats:
1. High rising aviation fuel prices
2. Slow down in the economy
3. Growing competition like other LCC carriers, video conferencing etc
4. Austerity measures by corporate sectors
5. Subdued demand from tourist sector
6. Capacity for catering future demand
S.W.O.T Analysis
Way forward for Indigo airlines
•Explore untapped Cargo market•Focus on international LCC•Increase product portfolio from LCC to full carrier service •Focus on innovation•Focus on expansion capacity•Cut down of advance booking prices•Link to tourism industry