Strategic Management of Spice Jet

7/28/2019 Strategic Management of Spice Jet

1/23

AIRLINE INDUSTRY

03-06-2013

1

TEAM MEMBERS

MAHALAXMI

SONAL JINDAL

NIKITA TODI

ABHIJIT SEN


2/23

AVIATION INDUSTRY IN INDIA

Came into being on Feb 18, 1911

In 1932, JRD Tata launched TATA Airlines.

In 1948, Air India International came into being betweenIndian Government and AIR India (TATA Airlines).

In 1953, Nationalization of Aircraft Industry took place..

In 1986, Private sector players were permitted as Air taxioperators.

03-06-2013

2


3/23

03-06-2013

3

In 1994, Private carriers permitted to operate scheduled

services.

In 2003 -2006 Entry of more low cost carriers took placewhich included Air Deccan, Spice Jet, Go Air, Indigo. This

helped aviation to become more affordable


4/23

FOUNDED 2004

COMMENCED OPERATIONS - 24May 2005

DESTINATION - 37 Indian and 4international

PARENT COMPANY SUN GROUP

KEY PEOPLE - Kalanidhi Maran,Chairman

Neil Mills, CEO 03-06-2013

4


5/23

COMPETITORS

INDIGO

JET KONNECT

GO AIR

03-06-2013

5


6/23

Porters 5 Forces

1. THREAT OF NEW ENTRANTS

Huge capital requirement: Capitalization of minimumRs.30Cr without which it is not allowed to takeoff

Expected retaliation: market is concentrated in the handsof a few players thus any new player will have to face stiffcompetition

Infrastructure: difficult for the existing airlines to

function smoothly and thus deters new ones Shortage of pilots and high fuel costs Exit barriers

03-06-2013

6


7/23

Porters 5 Forces (contd)

2. POWER OF BUYERS General Indian traveler is extremely value conscious.

Growing awareness has increased expectations forpunctuality, safety and service.

Minimal switching cost and alternatives available. No differentiation among the players in the same

segment e.g. the differences between Air Deccan andSpice Jet is minimal.

Transparent Web based comparisons in fare structuresare available which increases the power of thecustomer to choose the best deal. Roleof intermediaries like travel agents diminishing.

03-06-2013

7


8/23


3. POWER OF SUPPLIERS Only two major critical suppliers: aircraft suppliers enjoy

in a duopoly and fiercely control their market sharesAcute shortage of pilots which makes the industry

dependent on them Forward integration: airlines also face a threat of forward

integration as the suppliers have or know about most orthe technical aspects of the industry Airbus and Boeing

have two radically diverse views on the future needs ofcivil aviation and this is reflected in their new productdevelopments.

03-06-2013

8


9/23


4.AVAILABILITY OF SUBSTITUTES

Product for product substitution- Consumers havevarious options in terms of airlines to choose from.

They may also switch to other modes of transport such asroad and rail.

Substitution for need- With the advent of technologyoptions such as video conferencing and conference calls

reduces the need to travel

03-06-2013

9


10/23


5. POWER OF COMPETITORS Intense Competition amongst low cost airlines and the

full service airlines. Apex fares and promotional schemes offered by all the

full service carriers, offering prices at lower or similar tothe low cost ticket fares are a tremendous competitiveforce.

Mergers and acquisitions take place here too whichincreases competitive rivalry between airlines

Low level of differentiation between the services offeredby the different airlines increases the risk of switchingHigh fixed costs and input constraints also add to thecompetitive pressures in the industry

03-06-2013

10


11/23

SWOT ANALYSIS

STRENGTHS

1. Strong backing by the Promoters

2. LCC segment is ever growing in the country

3. One of the largest low cost carriers in India

4. Has a reach to around 35 Indian destinations

03-06-2013

11


12/23

Contd..

03-06-2013

12

5. Good presence in the market due to its branding andadvertising

WEAKNESS1. Low market share due to presence of significantcompetition

2. Has limited destinations and no international presence


13/23

SWOT ANALYSIS

OPPORTUNITIES

1. Middle Class taking to the skies

2. More opportunities to grow on popular routes anddestinations

3. International tie-ups would boost brand image andreach

03-06-2013

13


14/23

03-06-2013

14

THREATS

1. Strong competition in LCC segment

2. Rising Fuel Costs

3. Changing government policies


15/23

FINANCIAL ANALYSIS

03-06-2013

15

DuPont Analysis 2012 2011

Current Ratio (Current Assets / Current Liabilities) 23.09%

7.17%

Working Capital [Net Current Assets] -142.07 -291.32

ROS (Net Profit / Sales) -0.15 0.04

A/E [Avg. Total Assets / Avg. Equity]-5.78

2.17

S / A [Sales to Assets Ratio] 4.64 4.12

ROE (%) [R/E] (Net Profit / Avg. Total Shareholder Equity) 4.02 0.36

DuPONT Analysis


16/23

The Firms Future Plans

It has two fold strategy :-

1. Boeing 737 domestic

2. International Operation

03-06-2013

16


17/23

Technological Investments

SpiceJet will utilize state of the art technology to ensureits fleet reliability and safety monitoring are second tonone.

It will be making a very significant investment insystems and technology to ensure that it can deliver adependable operation and deliver quality customerservice.

With the installation of the In-flight Safety MonitoringSystem, Star Navigation will introduce other modernfeatures for seamless communication and informationtransfer.

03-06-2013

17


18/23

03-06-2013

18

Star Navigation has also agreed to launch the world'sfirst WiFi system on-board a SpiceJet aircraft, allowingthe aircraft to communicate with the airline's corporateLAN, and enable high speed data downloads and uploads

while in the air.


19/23

FINANCIAL PERFORMANCE

Operating Profit -518.36 115.69

2012 2011

Gross Profit -497.22 141.91

SpiceJets total revenues increased by 35.6% in FY2011-12 .

Revenue from operations increased by 37% . This increase was driven by better capacity utilization. Other Income during FY 2011-12 decreased by 13% due

to lower income from sale and lease back transactionsand a reduction in interest income.

03-06-2013

19


20/23

OBSERVATION

Growth Enough expansion scope is there in IndianAviation Market .

Competition - As Kingfisher is losing its market share soSpiceJet will face a huge competition to acquire thatshare .

03-06-2013

20


21/23

SUSTAINABILITY

From the current results it can said that SpiceJet cansustain in this industry .

Able to post a profit after 5 successive quarters.

SpiceJet improved its market share from 17.1% to 18.6%.

03-06-2013

21


22/23

IMPROVEMENT TO MAKE THE FIRMPROFITABLE

SpiceJet should take a decision to expand itsoperation to Tier II and Tier III cities to provide better

connectivity to domestic passengers.

There are many airports which are limited byinfrastructure , constraints to accommodate jets butthey can be served by Turbo-propeller aircraft type.

03-06-2013

22


23/23

THANK YOU

03-06-2013

23

Strategic Management of Spice Jet

Documents

Transcript of Strategic Management of Spice Jet