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Cost Leadership StrategyThis strategy is all about gaining competitive advantage over competitors by reducing costs. There are two main waysof achieving this within a Cost Leadership strategy: ♦ Increasing profits by reducing costs considerably, while charging industry-average prices ♦ Volumes – Increasing market share through charging lower prices, while still making a reasonable profit on each sale because you’ve reduced costsThe key ingredients in effective cost leadership strategy are : ♦ Economies of Scale ♦ Access to the capital ♦ Efficient Supply Chain ♦ Superior Management ♦ Use of Technology ♦ A low cost base (labor, materials, facilities)
Industry Growth & TrendsIndia’s domestic airlines now offer 8,600 more flights and 1.7 million more seats every year since 2003. 62% year on year growth in domestic low cost sector. Low cost operations account for 44% of all flights within India [compared to 22% in UK and 19% in US There is a gold rush in the skies over India. In effect, a great number of venture capitalist in the world, with the requisite 444 million rupees (US$10 million) to launch a private airline, want to claim a share in this booming sector
SegmentationA socio-economic revolution was underway in India as the consumer profilebecomes increasingly middle class.
Background (Indigo)IndiGo Airlines commenced operations on the 04 h of August 2006 with their inaugural flight from Delhi to Imphal.Founded by Rahul Bhatia and Rakesh Gangwali, InterGlobe established IndiGo the following year, modelled on US low cost carrier JetBlue andbolstered with an investment from president & CEO Bruce Ashby (a former US Airways EVP).Consolidating its position as the fastest growing airline in India with 237 flights ,connecting 25 destinations across the nation, in a short spanof almost 5 yearsJanuary 19, 2011 ±Indias largest low fare airline, IndiGo, has been granted international traffic rights, by the Government of India, to operateservices from several cities in India to Singapore, Bangkok, Dubai and Muscat during the forthcoming summer scheduleAugust 12, 2010 Airlines bagged the prestigious Skytrax World Airline Award for being the best low cost airline of India & Central Asia at the World AirlineAwards . It is said to be the only company in Indian domestic aviation industry which is profitable while most of its competitors are sufferings from variousproblems – internal and external and reporting lossesWithin 6 years of operation it has captured almost 20% of the market share and is the fastest growing airlines in the domestic market. Indigo has recentlycaptured the no-1 position betting Jet Airways and Kingfisher.The aircrafts with all economy 180 seats were onboarded.
Every time an IndiGo aircraft takes off in daylight, the pilot switches off thenavigation lights located on its wing and tail tips.The reason: savings on the cost of changing bulbs. It’s such a minor detail andthe saving so small that most airlines wouldn’t bother, but it’s taken seriouslyat IndiGo.
Indigo’s Positioning Price & Product Attributes ±Economy oriented Customer Service Processes ±On time every time Strong & Organized Service Distribution & Delivery Systems Healthy & Luxurious Service Environment Competent Service Personnel
Focus areas before placement• Cost Control : Money saved is money earned• High on Customer Service• Prompt complaint redressal system• Low turnaround and better timeliness• Driving employee efficiency• Low fare Airlines with maximum possible comfort• No superfluous business
Indigo’s Key driversFeatures : Single model of aircraft Benefits Reduces maintenance and inventory cost Operate on Lower charges, lower turnaround time due to less congestion E-Ticketing secondary Improves aircraft utilization by reducing waiting time at airports airport More seats per flight so spread costs over a larger base Helps to keep the cost and hence the fares low. No frills such as Point to Point free food/drinks, airport lounges etc. Model Reduces employee cost and leads to higher employee productivity Fewer employees Single class Emphasis on direct sales of ticket through internet to avoid fee configuration per aircraft and commissions paid to travel agents Primarily on board Sales. Provide alternate source of revenues – No In-flight helps to reduce break even PLF. services
Delivering up to the commitmentTag line-´On Time Every Time
ConclusionsIndigo has been able to remain profitable and grew its market share since inception.However it is still a relatively young airline (6 yr old). It has to prove that low costmodel can remain profitable in long run, just like South West airline which has beenoperating as LCC since 40 yrs. It has started international operations in September2011. The international sector is a different ball game altogether. Indigo has to seehow it can compete in that sector with its existing business model.