Strategic

Management

Project

IndiGo

Since its Inception approximately ten years ago, IndiGo has created a

brand name for itself through different strategy practices which are rarely

seen in the Indian Airline Industry. It is currently the market leader in this

sector and there are no close competitors to it.

Prepared by:

Aakriti Gupta (002)

Ankita Sood (009)

Deepti Verma (016)

Lay Thaker (030)

Pramey Zode (038)

TABLE OF CONTENTS

Sr. no

1 About the company

2 About the Industry

3 External Analysis (PESTEL & Porters’ five forces)

4 Internal Analysis (SWOT & VRIO)

5 Strategies at Various levels (Corporate/Business/Functional)

6 Strategic Models

7 Recommendations

8 Conclusion

1. ABOUT THE COMPANY:

IndiGo, headquartered in Gurgaon, India is the largest airline in terms of passengers flown

with market share of 36.5% as of September 2015. It was set up in early 2006 by Rahul

Bhatia of InterGlobe Enterprises and Rakesh Gangwal, a United States-based NRI.

InterGlobe holds 51.12% stake in IndiGo and 48% is held by Gangwal's company Caelum

Investments. IndiGo began its operations on 4th August 2006 with a service from New Delhi

to Imphal via Guwahati. The airline currently operates a fleet of 97 planes and offers 648

flights a day.

1.1 Timeline:

2011-12: IndiGo replaced the state run flag carrier Air India as the top third airline in India. It

already had 17.3% of the market share. By early 2012, IndiGo had taken the delivery of its

50th aircraft in less than six years. In 2011, IndiGo placed an order for 180 aircraft Airbus

320 aircraft in a deal worth US$15 billion which pushed up the percentage of Airbus aircraft

in India to 73%

As of 2012, IndiGo was expanding rapidly and was the only profitable airline in India. It

replaced Kingfisher as the second largest airline in India in terms of market share. IndiGo

strongly adheres to a low-cost model, buying only one type of aircraft and keeping

operational costs as low as possible along with an emphasis on punctuality. IndiGo added a

new plane every six weeks and sometimes even faster. In December 2011,

the DGCA highlighted problems resulting from the expansion could impact safety. On 17

August 2012, IndiGo became the largest airline in India in terms of market share (27%)

surpassing Jett Airway, six years after operations commenced.

2013-14: IndiGo was the second fastest growing low-cost carrier in Asia behind Indonesian

airline Lion Air. However, IndiGo announced that it actually plans to seek permission from

the ministry to acquire four more aircraft, therefore taking the delivery of nine aircraft in

2013. In August 2013, the Center for Asia Pacific Aviation ranked IndiGo among the 10

biggest low-cost carriers in the world.

2015-16: IndiGo placed an order of 250 Airbus A320 Neo aircraft worth $27 billion, making

it the largest single order ever in Airbus history. Indigo announced a Rs.3,200 crore initial

public offering on 19 October 2015 which opened on October 27, 2015. IndiGo, which had a

33.8% share of domestic passenger traffic in the year ended 31 March, reported a net margin

of 9.4%, according to the submission to DGCA.

1.2 The Mission statement

“IndiGo is a very quality conscious airline and passenger safety is paramount to our

company’s mission and values,"

1.3 Market Share

2. ABOUT THE INDUSTRY:

Tony Tyler, Director-General and CEO of International Air Transport Association (IATA)

has stated that the global world is focussing on Indian aviation, starting from manufacturers,

businessmen, airlines, global businesses, tourism boards to individual travellers and shippers.

According to him, if there is a common goal among all stakeholders in the aviation sector of

India, a bright future can be expected.

2.1 Market size

It has been reported that the air traffic in India has increased over the last five years both in

terms of aircraft movement and passenger traffic. The compound annual growth rate (CAGR)

of total aircraft movements was 3.3% and of passengers 5.6% during FY11 to FY14. In the

next five years too, in terms of the aircraft movements, passengers and freights, the aviation

sector is expected to grow, according to the Airports Authority of India (AAI). The job

market in this sector is also expected to improve in 2015 with a number of new airlines

coming up. Globally, it stands ninth in the civil aviation market. It ranks fourth in domestic

passenger volume. It has been reported that by 2020 the civil aviation market in the country

will become the world’s third largest and is expected to be the largest by 2030. This sounds

really good.

2.2 Factors contributing to the growth of the aviation sector

From an over-regulated and under-managed sector, the aviation industry in India has now

changed to a more open, liberal and investment-friendly sector, especially after 2004. The

civil aviation sector in India has moved into a new era of expansion. Some major factors

contributing to this are:

Higher household incomes

Strong economic growth

Entry of low cost carriers (LCC)

Increased FDI inflows in domestic airlines

Increased tourist inflow

Surging cargo movement

Cutting edge information technology (IT) interventions

Focus on regional connectivity

Modern airports

Sustained business growth and

Supporting Government policies

2.3 Some major threats to the Airline Industry:

A global economic slowdown negatively impacts leisure, optional and business travel.

The continuous rise in the price of fuel is a major threat.

A terrorist attack anywhere in the world can negatively impact air travel.

Government intervention can lead to new costly rules.

Operation of many airlines

Problems facing the aviation sector

High operational costs

High cost of aviation turbine fuel

High service tax and other charges

Shortage of maintenance facilities

High foreign exchange rate

Competition from foreign airlines

Congestion at airports

Lack of qualified pilots and technical manpower

2.4 The Road Ahead

The launching of the new airlines can be an aviation boom in the country as it will lead to an

increase in the number of flights, lower prices, more demand for ground staff and trained

crew, including a rise in finance and leasing activities. However, the real challenge of the

Indian aviation industry is to manage the unprecedented growth of air traffic with safety. The

increase in air traffic has raised the demand for aircrafts. But at the same time, it has also

posed a problem of modernising the airport and air navigation infrastructure so that safe,

efficient and orderly operations are ensured. There is an urgent need to study the causes of

the issues and address them so as not to obstruct the growth path of the aviation sector.

And we should remember that even today, access to aviation is still a distant dream for the

poor and the lower middle class sections of its vast population. So there is a large untapped

potential for growth in the industry as well. It is necessary for the stakeholders to engage and

collaborate with the policy-makers to implement efficient and rational decisions that will

shape the future of the aviation industry. With the right policies and a continued focus on

cost, quality and passenger interests, India would definitely be able to realise its vision of

becoming the third largest aviation market by 2020.

3. EXTERNAL ANALYSIS:

3.1 Porter’s Five Forces strategy for Airline Industry

3.1.1. 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/Indian Civil Aviation Policy

Setup costs

Fuel prices

Resource

3.1.2. 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.

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

for their aircrafts.

3.1.3. 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.

3.1.4. 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 airlines:

Very little scope for differentiation between competitors’ products and services

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 Spice Jet followed by Go Air

3.1.5. 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 carrier’s like

SpiceJet and Go Air. So in this case, threat of substitutes is high as the switching cost

between low cost carriers is low

3.2 PEST Analysis:

4. INTERNAL ANALYSIS:

Under Internal analysis we have considered two broad categories: 1) SWOT Analysis & 2)

VRIO analysis.

4.1 SWOT Analysis:

• Cargo services

• Increasing flight frequency

• International market

• Chartered flight services

• High fuel prices

• Continousally changing FDI policies

• Barriers to exit

• Less product differentiation

• Not on too many routes

• International absence

• Brand awareness

• Cost leadership

• High market share

• Advertising and marketing strategies

Strengths Weaknesses

Opportunities Threats

4.2 VRIO Framework:

VRIO is the acronym from the first letters of the dimensions - value, rareness, imitability, and

organization. So, the first question that has to be answered is whether a resource is valuable.

It is considered valuable if it can increase market share, achieve cost advantages, or both.

Otherwise, it is not a source of competitive advantage. Once a resource is deemed valuable,

the next question is whether it is rare or that it is not available to all competitors. If it is

valuable but not rare, meaning competitors possess the same resources, the organization has

no inherent advantage in this resource. The resource must also be difficult or costly for

competitors to imitate or acquire. This dimension is called imitability, which can result in a

sustained competitive advantage only if the organization can take advantage of it.

Organization is where the resource is supported by any provisions in the company and that it

can be used properly. Otherwise, the resource or capability is of little use. Thus, a resource

that is valuable, rare, costly to imitate, and the company is organized to capture its value can

be a source of sustainable competitive advantage for an organization.

The VRIO analysis for IndiGo is as follows:

Resources &

Competencies

Value Rarity Imitability Organization

Low Fares Yes Yes No Yes

Single type of

Aircraft

Yes Yes Yes Yes

Turnaround

Time

Yes No Yes Yes

Brand Name Yes Yes Yes Yes

Value:

IndiGo has created value and increased its market share by offering the lowest fares to its

customers. The way they do it is through having a single type of Aircraft which reduce

the overall maintenance cost of the Aircraft, since there is only one kind of Aircraft. It

also does Fuel Hedging which reduces the overall cost of fuel.

Rarity:

IndiGo has the highest market share in the Airline industry and it owes everything to the

low fare tickets it offers to the customers. The low average fleet age and single type of

aircraft is a rarity in the Indian Airline Industry.

Imitability:

Even though IndiGo has create much value in the market and amongst its customers, but

many of its strategies like less turnaround time and using single type of Aircraft are

imitable and hence, in long run are not sustainable.

Organization:

In the last few years, IndiGo has become the brand name in the Indian Airline Industry. It

has hardly been ten years since its inception and it has created a brand value through

unique value proposition.

5. STRATEGIES AT VARIOUS LEVELS

FUNCTIONAL LEVEL

STRATERGIES

OPERATIONS

•Single type of aircraft

•single class

• low average fleet age

• fuel

• route planning

• tightly framed maintainance contracts

•other measures

MARKETING

• low advertising

•strategic marketing

FINANCIAL ASPECTS

•debt

•sale and leaseback

5.1 Functional level strategies

5.1.1 Operations

5.1.1.1 Single type of aircraft

Indigo’s whole fleet consists of A-320-232 aircraft while Air India, Jet Airways and Spice

Jet use 10, 9 and 3 different makes of aircraft respectively. This result is in greater flexibility

by making use of the same crew from pilots to flight attendants to the ground force thereby

cutting hiring, training and up gradation costs.

5.1.1.2 Single Class

Having only Economy class means that Indigo does not have to spend time, money and crew

on privilege passengers. They also don't need to maintain expensive lounges at airports

further reducing costs.

5.1.1.3 Low average fleet age

Indigo has an average fleet age of less than 3 years. A younger fleet means less maintenance

costs. Indigo plans to maintain a lower fleet age as all its aircraft are leased for a period of 5-6

years. This way they avoid the D-Check which is done after 8 years of operation of an

airplane. (A D-check may take up to 2 months during which the aircraft remains out of

service.)

5.1.1.4 Fuel

Domestic fuel taxes can be as high as 30 per cent along with an 8.2 per cent excise duty. As a

result, fuel for Indian airlines accounts for about 45 per cent of total operating costs,

compared to the global average of 30 per cent. Indigo’s aircraft try to save fuel by using

software to optimize flight planning for minimum fuel burning routes and altitudes and also

by making use of latest fuel saving technology.

5.1.1.5 Route Planning

Indigo operates over a lesser number of destinations than its competitors but with a higher

frequency - with a fleet of 78 planes for 36 destinations while Spice Jet flies to 46

destinations with 58 planes.. The network maps show that all Indigo's destinations are

connected to at least two cities while most are connected to 3 or more destinations, whereas

this is not the case with Jet Airways. This means Indigo can keep its aircraft in the air for a

longer period of time and save up on airport charges. Because of this Indigo has a high

aircraft utilization rate of more than 11.5 hours per day per plane. This also means that

customers don't have to look for connecting flights with other competing operators.

5.1.1.6 Tightly framed maintenance contracts:

Indigo has a Power by the Hour contract with International Aero Engines (IAE), which

provides the engines that put the onus of performance delivery on the manufacturer. Indigo

has similar agreements with Airbus, as well as with the vendors for other critical components.

These contracts probably come at a premium but it means that Indigo does not have to pull

out planes from service for repairs and also does not have to maintain a large inventory of

spares.

5.1.1.7 Other cost-cutting measures

i. Turnaround time - An airline is charged for the duration its aircraft stays at the

airport. Indigo has a faster turnaround time (time taken between landing and the

next take-off) of 30 minutes. Point 5 is one of the reasons for this. Having a single

make of aircraft again helps in this regard as the time taken by the crew gets

optimized.

ii. Employee Aircraft ratio - Lower employee aircraft ratio of 102 compared to Jet

Airways’ 130 and Air India's 262.

iii. Stage Length - Average Stage length (flying time per flight) of 1.5 hours, which

means not having to stock and serve hot meals in most flights. This again

contributes to the low turnaround time.

iv. Most Indian airlines take delivery of aircraft by sending their own pilots and

engineers (to Toulouse in the case of Airbus). Indigo prefers to get them delivered

to Delhi, this is costlier but it also leads to better utilization of the available pilots

and the engineering crew.

5.1.2 Marketing

5.1.2.1. Little advertising spend.

5.1.2.2. High reliance on word of mouth marketing in its early days by establishing a

reputation of being a no frills airline which is always clean and on time.

5.1.2.3. Strategic marketing - Indigo advertised heavily when it started international

operations and also when Kingfisher was going bust, with catchphrases like 'Let the bad

times roll… Fly Indigo in good times and in bad times.' taking a dig at Kingfisher's

tagline 'Fly the good times.' This move was criticized but it worked for Indigo. The result

of these operational and marketing aspects is visible in Indigo which has a market share

of 30% and the highest passenger load factor of close to 90% compared to 77% of JetLite

and 81% of Spice Jet. This means better revenue for Indigo compared to its competitors.

5.1.3 Financial

5.1.3.1 Debt:

Indigo has gone on record to say that the company has practically no debt.

5.1.3.2 Sale and Leaseback:

Leaseback is a financial transaction, where one sells an asset and leases it back for the long-

term; therefore, one continues to be able to use the asset but no longer owns it. The

transaction is generally done for fixed assets, notably real estate, as well as for durable and

capital goods such as airplanes and trains. Indigo has been able to better leverage this by

placing bulk orders for aircraft. In 2005, when Indigo did not even exist as an

entity InterGlobe Enterprises placed an order for 100 A320s during the 2005 Paris Air show.

This was also one of the biggest orders during the show. The company again placed an order

of 180 new A320s in 2011.

5.2 Corporate level strategies

5.2.1 Range and diversity

IndiGo operates 78 planes for 36 destinations- higher frequency

5.2.2 Corporate growth

With innovative ideas like “check-in counters” for passengers with only cabin baggage so

that instead of waiting in lines, they can check-in with an indigo official with a handheld

device, Indigo is creating its own blue ocean.

5.2.3 Engagement with various travel web-portals and collaboration with hotels has increased

its social capital. Eg: indigo gives 10% discount on the next travel booking if customers had

stayed in any of the tie-up hotels.

5.2.4 Professional Airline management

Indigo paid much attention to its corporate level strategies right since its inception. Its first

CEO, Bruce Ashby, landed in India 18 months before its planned launch.

5.2.5 Change in organisational structure

While most domestic airlines are cutting up their staff strength, indigo is speeding up its

recruitment process for more pilots, cabin attendants, and other supporting staff.

5.2.6 Salary structure

Unbelievably low.

Experienced commanders: 3-4 lacs pm

Experienced first officers: 2-2.5 lacs pm

New employees: 1 lac pm

Cabin crew: 35-50 k pm

Engineering: 75-80 k pm

The usual scale for the industry is double the amounts here. Contractual jobs, no commitment

on the company's half whatsoever but requiring back breaking efforts in order to renew your

contract every two years to keep the job. 75% of an airlines' monthly bill accounts for the

crew salary.

5.3 Business level strategies

5.3.1 No Frills

The underlying business for a LCC is to get a person from point A to point B. Everything else

is considered to be luxury items or "frills", of which can be acquired for a small fee.

No free food & beverages. Some of our passengers may prefer not to consume food

& beverages when on board. There are those who prefer to rest throughout a flight or

those who prefer having their meals before flying off. Hence we do not force our

guests to purchase something they do not want or need. Guests are most welcome to

purchase food & drinks at an affordable price from our website before the flight, of

from the cabin crew during the flight.

Assigned seating. Guests receive boarding passes with pre-assigned seats and are not

allowed to request for a seat change unnecessarily. If the guests have preferences on

where or with whom they would like to seat on the aircraft, they are able to do so by

paying a small sum when checking-in online. This feature is called “Pick-a-Seat”.

Ticketless airline. Less hassle for the customer, as guests need not worry about

collecting tickets before travelling. This also allows flight to keep the costs down (less

paper, lower printing and distribution costs) and continue to offer low fares to our

guests.

Online check-in. Guests are highly encouraged to check-in online so they do not have

to waste time lining up at the check-in counters at the airport. This helps us to

improve efficiency and reduce congestion in the airport.

No refund. Airlines waste a lot of money, time and resources due to refunds and

rescheduling when guests do not show up for a flight. Whether or not a guest shows

up, the cost of flight to the airline is the same. LCCs are strict when it comes to no

show guests and do not offer refunds for missed flights.

Secondary Airports Low cost carriers mostly fly to and from airports that are not

necessarily the busiest. These are often referred to as secondary airports. Operating

from secondary airports is cheaper than the major airports. They are also a lot less

congested and "turnaround times" for aircraft are a lot shorter.

Lean Distribution System Distribution costs are something that FSCs most often

ignore. Very often, FSCs rely on travel agents and their sales offices. Furthermore,

FSCs tend to complicate their distribution channels by integrating their systems with

multiple Global Distribution Systems, which are very costly. LCC will keep their

distribution channel as simple as possible and will cover the whole spectrum of the

clientele profile. And at the same time, Indigo has an established system to sell our

tickets to the most remote and technology deprived locations, such as in

Myanmar.

Internet sales. The bulk of sales (85%) are done via the airline's website, whereby the

fares are paid using credit cards, debit cards or via online banking. This is the most

cost effective distribution channel.

Sales office. Indigo must have a few sales offices. We only establish a sales office if

we are confident the sales derived from the centre will be worth it.

Travel agents. LCCs avoid reliance on travel agents as much as possible. This means

that the airlines do not pay any commission to travel agents, which would otherwise

have been reflected in the fares. Also, as LCCs do not use travel agents, we do not use

nor participate in the world wide reservation systems. This allows us to save costs,

which again are reflected in our pricing.

Call centres. Ticket sales can be done via telephone - a simple and cost effective

method

5.3.2 Other strategies

Weight plays a major role in the consumption of fuel in aircrafts, so even a minor reduction

in weight would lead to reduction in fuel consumption which will lead to lesser CO2

emission. Even a reduction in weight of teabag would reduce one kg of CO2 emission.

Below are some strategies that would affect fuel consumption and reduction in waste.

Replacing magazines and instruction booklets with tablets and e-books to save paper

wastage and provide add-ons to the customers.

Lightweight seats and trolleys to reduce the weight in plane.

Use ground power units instead of auxiliary power units when grounded which will

lead to saving of fuel.

Regular wash of engines and other peripheral to increase the efficiency.

6. STRATEGIC MODELS

6.1 Core strategies for cost reduction:

more fuel-efficient aircraft

new technologies and Biofuel to reduce emissions

Installing winglets to reduce drag and fuel use

Removing excess weight

Limiting the airplane idling times

6.2 Value Chain Analysis:

7. STRATEGIC RECOMMENDATIONS:

7.1 Short term:

1. Increase number of destinations served

2. Offer low-priced corporate travel packages

3. Offer red-eye flights

7.2 Long term:

1. Introduce air cargo service

2. Offer flights to unserved destinations through tie-up with FSC

8. CONCLUSION

From the above study and analysis, we can conclude that as already IndiGo airlines is making

its mark in the market; it has a huge scope for further growth. Strategies implemented by the

airline have given good results so far and the same is expected in future. The strategic

recommendations could help the airline take off to newer heights.