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Indigo strategy execution plan short

Full roll out of strategy .....demonstration in LCC setting in developing markets.

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STRATEGY EXECUTION PLAN: INDIGO AIRLINES
1. Introduction
1.1 IndiGo Airlines is a focused Low Cost Carrier in the Indian domestic
schedule air transport segment. It operates from the national capital Delhi and
its tag line says “low fares, on-time flights and a hassle-free experience” for
passengers. It commenced operations in August 2006 with a single aircraft, and
has grown their fleet to 109 aircraft. They have a relatively young fleet and the
average age of their aircraft is 4.6 years as on Jun 2016. IndiGo has:
a. A single aircraft type
b. A high operational reliability
c. An award-winning service
1.2 It was formed by collaboration of two main promoters, who had much
exposure of Low cost airline operation and also seen bankruptcy of some LCCs
up close in the USA. Mr. Rahul Bhatia is the Promoter and Non-Executive
Director of the Company. Mr. Rakesh Gangwal, a citizen of the United States
of America is the second Promoter and also a Non-Executive Director on the
company Board. He holds a master’s degree in business administration from the
Wharton School, University of Pennsylvania, with a major in finance. He has
more than 30 years of experience in the aviation industry. Mr. Rakesh Gangwal
joined United Airlines in February 1984 where he held positions of various
responsibilities before leaving as Senior Vice President - Planning in November
1994. Mr. Gangwal then joined Air France as an Executive Vice President -
Planning and Development in November 1994. He left Air France in February
1996 to join the US Airways Group, Inc. and US Airways Inc. as the President
and Chief Operating Officer. In November 2001, he left the US Airways Group
as the President and Chief Executive Officer and was engaged in private equity
and consulting related activities.
1.3 InterGlobe Enterprises Limited is the holding company of IndiGo Airlines.
Inter Globe Enterprises was incorporated as Inter Globe Enterprises Private
Limited on September 13, 1989 under the Indian Companies Act, 1956.
InterGlobe Enterprises is engaged in the business of inter-alia providing
services as tourist and travel agents, transport agents and IATA agents.
1.4 Indigo Airlines, is the largest domestic Low-cost Airline in India, with a
38.9% market share and 2.8 million passengers as on May-2015. Indigo
Airlines maintained its market share lead over other competitors in this
industry.
Fig. 1. Source: CAPA- centreforaviation.com
1.5 Present competitive position of indigo in the domestic Low Cost Carrier
segment in Indian civil transport Industry is poised for start of a major growth
phase and may capture 50 percent of domestic market share by 2018.Total
valuations of Indigo Airlines after the recent market listing has been $4
billion.
Competitors' analysis
1.6 Major competitors in this space are Jet Airways, Air India, Spice Jet, Go
Air, and few others with minimal market share. As world over airline
business is one with intense rivalry and competition, Indian scenario has also
witnessed intense price and differentiation competition. Jet Airways and Air
India are Full service carriers and operate in a different sub-segment of this
market i.e. full service operators. Nearest rivals are Spice Jet and Go Air
which are Low cost operators and operate in the same space as Indigo as
depicted in the Strategy Map. Nature of competition among LCC is based on
operational excellence and innovative cost cutting. Detailed Competitors
analysis data and strategy map depicting positions of various operators is as
shown in the appendix.
1.7 Jet Airways total domestic revenues are currently INR 2,167 crores, up
by 17.7% on year-on-year basis². Domestic operations in Jet Airways
achieved a load factor of 80.3%, an improvement of 8.4% points over last
year same quarter. ASKMs went up by 26.4% compared to Q1 of last year.
Etihad Airways is also a shareholder in Jet Airways, holding 24 % of total
equity. Etihad which handles bulk of the Indian traffic to the Gulf finds it
suitable to have an alliance with Jet Airways to fill in the local last mile
connectivity.
1.8 Air India has achieved the target set out in the Turn Around Plan (TAP),
and has made substantial progress in both operational as well as financial
areas. The main areas in which the company has registered improvements in
FY15 in comparison to fiscal 2013-14 include seat factor, network yield,
revenue from passengers and on-time performance on the operational side.
Since the implementation of TAP/ Financial Restructuring Plan (FRP), the
operating loss has reduced from INR 5,138.69 crore in the fiscal 2011-12 to
Rs 2,171.40 crore in the year ended March 31, 2015, and the net loss has
come down to Rs 5,547.47 crore in 2014-15 from Rs 7,559.74 crore in 2011-
12, the minister said.
1.9 Spice Jet reported a net profit of Rs 23.77 crore in the three months
ended September15 driven by a steep fall in fuel costs and other expenses.
The no-frills carrier, which saw the return of its original promoter Ajay Singh
at the helm earlier this year, had a net loss of Rs 310.45 crore in 2014
September quarter. The airline has flown into the black despite its total
income from operations declining over 28 percent to Rs 1,040.13 crore in
July-September of the current fiscal. In year-ago period, the same stood at Rs
1,449.94 crore. Spice Jet benefited from over a 57 percent drop in jet fuel bill.
The airline recorded a load factor of 92.8 percent for the quarter, the highest
in the industry," the release said. In line with year-on-year capacity reduction
of 34 percent that was driven by a smaller fleet in late 2014.
Firm Capability Analysis
1.10 Indigo Airlines, is the largest domestic Low-cost Airline in India, with a
38.9% market share and 2.8 million passengers as on May-2015. Indigo
Airlines maintained its market share lead over other competitors in this
industry. IndiGo is expected to take deliveries of Airbus neo aircraft
beginning 2016 (till 2020).this will take the total tally to the total of 250
aircraft. Presently the order book is closed for fresh orders by the
manufacturers. The competitors of IndiGo will be in a disadvantageous
position as they will not be able to scale up operations soon. With such a
rapid increase in capacity, the airline may give tough competition to other
LCC operators from next calendar year onwards. These aircrafts are highly
fuel efficient and may result in 10 to 15 % savings in fuel cost.
1.11 According to a recent report by global aviation consultancy CAPA,
IndiGo could grab up to 50 percent share in just two more years and 40
percent this fiscal itself. As India's domestic aviation grows on the back of
low fuel prices and increasing demand, IndiGo seems poised to reap
maximum benefits among all Indian carriers, which the airline has been
preparing (market dominance) for a long time. It is clear that indiGo itself
sees a huge potential in the Indian aviation market and is trying to out-
maneuver competitors by aggressive capacity expansion. As of now, the
airline has a fleet of 109 operational aircraft and offers over 600 daily flights
connecting 38 destinations. It went public and garnered up to $400 million,
by selling 25 percent equity, in Indian markets recently.
1.12 Strength of Indigo lies in achieving operational excellence at minimum
cost and performing consistently better than the Industry benchmarks like On
Time Performance and Employee Productivity etc. High achievement in
performance metrics has enabled Indigo to maintain high brand equity and
customer loyalty. It has enabled Indigo to maintain stable price and rarely
offer tickets at heavy discounts. Indigo for last three years, never offered
tickets, at flash sale. In addition to operational excellence Indigo has a sound
strategic business approach. During the global recession period 2011-12,
when there was dearth of orders for Aircraft manufacturers, Indigo ordered
250 Airbus 320 Neo at a very attractive price. Starting next fiscal deliveries
will start and Indigo will be able to increase capacity at a less cost compared
to its competitors. Interestingly, now the situation has changed and Airbus
320 Neos are not available against fresh order till 2017-18.
2. Strategy formulation
Having carried out strategic analysis and environment analysis of IndiGo
Airlines, which is a cost leader in LCC segment in Indian schedule carrier
industry, next step is to follow appropriate strategy formulation approach. It is
felt that an integrated approach may suit this scenario. It is recommended that
War room and Rapid Prototyping approach should be used simultaneously.
2.1 War room is a separate room designated in the organisation meant for
visual representation of issues and strategic options available to the firm. In
addition to various strategic options, individual tradeoffs and specific
highpoints of each option can also be represented. This facility can be used in
many situations like strategy formulation as well as tactical problem solving
which involves many variables and is complex in nature. Whenever there are
many stake holders involved in problem solving it is a good practice to meet up
at the war room and work out a better solution.
2.2 It is proposed to organise war room in three areas.
a) First area consisting of story board visualization of IndiGo Airline
covering functional areas of critical importance. It should start with a
happy and satisfied customer in the last and work backwards depicting
various strategic possibilities.
b) Second area depicting strategic options to manifest stated mission and
vision, also spell measurable outcomes like market share and other KPIs.
c) Third area is proposed to depict perceived pro and cons (analysis) of each
approach.
Story board depictions for Indigo Airlines, its operations and business
environment is as shown in the Annexure-I, Few slides depicting possible
strategic options is shown in Annexure-II. The mission and vision statement of
IndiGo Airlines states Low fares, on time Performance and Hassle free travel.
This mission is quite elaborate and covers full ambit of any airline operations. If
we see clearly this mission aims at excellence in overall operation, offering
differentiation only in priority. It is inferred that first priority of management
should be low fares. The second priority is declared as on time performance and
comforts of travel are targeted at the third priority. In short this mission
statement is fact a prioritization of full ambit of any successful airline.
Rapid Prototyping approach Airline industry is essentially a service industry
and very conducive to try Rapid Prototyping approach in some destinations or
some segments. IndiGo can try finalized strategy in some geographical areas to
check its performance before that strategy is rolled out across entire market.
2.3 Strategy:
a) It is proposed to achieve and sustain, lowest operating cost in the market
and aim to be cost leader in LCC segment in domestic carrier market in
India.
b) Aim to be in top two, on time performance leaders in domestic operations
as published by DGCA on annual basis.
c) Aim to sustain, among top two positions in customer satisfaction index,
published by DGCA.

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Indigo strategy execution plan short

  • 1. STRATEGY EXECUTION PLAN: INDIGO AIRLINES 1. Introduction 1.1 IndiGo Airlines is a focused Low Cost Carrier in the Indian domestic schedule air transport segment. It operates from the national capital Delhi and its tag line says “low fares, on-time flights and a hassle-free experience” for passengers. It commenced operations in August 2006 with a single aircraft, and has grown their fleet to 109 aircraft. They have a relatively young fleet and the average age of their aircraft is 4.6 years as on Jun 2016. IndiGo has: a. A single aircraft type b. A high operational reliability c. An award-winning service 1.2 It was formed by collaboration of two main promoters, who had much exposure of Low cost airline operation and also seen bankruptcy of some LCCs up close in the USA. Mr. Rahul Bhatia is the Promoter and Non-Executive Director of the Company. Mr. Rakesh Gangwal, a citizen of the United States of America is the second Promoter and also a Non-Executive Director on the company Board. He holds a master’s degree in business administration from the Wharton School, University of Pennsylvania, with a major in finance. He has more than 30 years of experience in the aviation industry. Mr. Rakesh Gangwal joined United Airlines in February 1984 where he held positions of various responsibilities before leaving as Senior Vice President - Planning in November 1994. Mr. Gangwal then joined Air France as an Executive Vice President - Planning and Development in November 1994. He left Air France in February 1996 to join the US Airways Group, Inc. and US Airways Inc. as the President and Chief Operating Officer. In November 2001, he left the US Airways Group as the President and Chief Executive Officer and was engaged in private equity and consulting related activities.
  • 2. 1.3 InterGlobe Enterprises Limited is the holding company of IndiGo Airlines. Inter Globe Enterprises was incorporated as Inter Globe Enterprises Private Limited on September 13, 1989 under the Indian Companies Act, 1956. InterGlobe Enterprises is engaged in the business of inter-alia providing services as tourist and travel agents, transport agents and IATA agents. 1.4 Indigo Airlines, is the largest domestic Low-cost Airline in India, with a 38.9% market share and 2.8 million passengers as on May-2015. Indigo Airlines maintained its market share lead over other competitors in this industry. Fig. 1. Source: CAPA- centreforaviation.com 1.5 Present competitive position of indigo in the domestic Low Cost Carrier segment in Indian civil transport Industry is poised for start of a major growth phase and may capture 50 percent of domestic market share by 2018.Total valuations of Indigo Airlines after the recent market listing has been $4 billion.
  • 3. Competitors' analysis 1.6 Major competitors in this space are Jet Airways, Air India, Spice Jet, Go Air, and few others with minimal market share. As world over airline business is one with intense rivalry and competition, Indian scenario has also witnessed intense price and differentiation competition. Jet Airways and Air India are Full service carriers and operate in a different sub-segment of this market i.e. full service operators. Nearest rivals are Spice Jet and Go Air which are Low cost operators and operate in the same space as Indigo as depicted in the Strategy Map. Nature of competition among LCC is based on operational excellence and innovative cost cutting. Detailed Competitors analysis data and strategy map depicting positions of various operators is as shown in the appendix. 1.7 Jet Airways total domestic revenues are currently INR 2,167 crores, up by 17.7% on year-on-year basis². Domestic operations in Jet Airways achieved a load factor of 80.3%, an improvement of 8.4% points over last year same quarter. ASKMs went up by 26.4% compared to Q1 of last year. Etihad Airways is also a shareholder in Jet Airways, holding 24 % of total equity. Etihad which handles bulk of the Indian traffic to the Gulf finds it suitable to have an alliance with Jet Airways to fill in the local last mile connectivity. 1.8 Air India has achieved the target set out in the Turn Around Plan (TAP), and has made substantial progress in both operational as well as financial areas. The main areas in which the company has registered improvements in FY15 in comparison to fiscal 2013-14 include seat factor, network yield, revenue from passengers and on-time performance on the operational side. Since the implementation of TAP/ Financial Restructuring Plan (FRP), the operating loss has reduced from INR 5,138.69 crore in the fiscal 2011-12 to Rs 2,171.40 crore in the year ended March 31, 2015, and the net loss has come down to Rs 5,547.47 crore in 2014-15 from Rs 7,559.74 crore in 2011- 12, the minister said. 1.9 Spice Jet reported a net profit of Rs 23.77 crore in the three months ended September15 driven by a steep fall in fuel costs and other expenses.
  • 4. The no-frills carrier, which saw the return of its original promoter Ajay Singh at the helm earlier this year, had a net loss of Rs 310.45 crore in 2014 September quarter. The airline has flown into the black despite its total income from operations declining over 28 percent to Rs 1,040.13 crore in July-September of the current fiscal. In year-ago period, the same stood at Rs 1,449.94 crore. Spice Jet benefited from over a 57 percent drop in jet fuel bill. The airline recorded a load factor of 92.8 percent for the quarter, the highest in the industry," the release said. In line with year-on-year capacity reduction of 34 percent that was driven by a smaller fleet in late 2014. Firm Capability Analysis 1.10 Indigo Airlines, is the largest domestic Low-cost Airline in India, with a 38.9% market share and 2.8 million passengers as on May-2015. Indigo Airlines maintained its market share lead over other competitors in this industry. IndiGo is expected to take deliveries of Airbus neo aircraft beginning 2016 (till 2020).this will take the total tally to the total of 250 aircraft. Presently the order book is closed for fresh orders by the manufacturers. The competitors of IndiGo will be in a disadvantageous position as they will not be able to scale up operations soon. With such a rapid increase in capacity, the airline may give tough competition to other LCC operators from next calendar year onwards. These aircrafts are highly fuel efficient and may result in 10 to 15 % savings in fuel cost. 1.11 According to a recent report by global aviation consultancy CAPA, IndiGo could grab up to 50 percent share in just two more years and 40 percent this fiscal itself. As India's domestic aviation grows on the back of low fuel prices and increasing demand, IndiGo seems poised to reap maximum benefits among all Indian carriers, which the airline has been preparing (market dominance) for a long time. It is clear that indiGo itself sees a huge potential in the Indian aviation market and is trying to out- maneuver competitors by aggressive capacity expansion. As of now, the airline has a fleet of 109 operational aircraft and offers over 600 daily flights connecting 38 destinations. It went public and garnered up to $400 million, by selling 25 percent equity, in Indian markets recently.
  • 5. 1.12 Strength of Indigo lies in achieving operational excellence at minimum cost and performing consistently better than the Industry benchmarks like On Time Performance and Employee Productivity etc. High achievement in performance metrics has enabled Indigo to maintain high brand equity and customer loyalty. It has enabled Indigo to maintain stable price and rarely offer tickets at heavy discounts. Indigo for last three years, never offered tickets, at flash sale. In addition to operational excellence Indigo has a sound strategic business approach. During the global recession period 2011-12, when there was dearth of orders for Aircraft manufacturers, Indigo ordered 250 Airbus 320 Neo at a very attractive price. Starting next fiscal deliveries will start and Indigo will be able to increase capacity at a less cost compared to its competitors. Interestingly, now the situation has changed and Airbus 320 Neos are not available against fresh order till 2017-18. 2. Strategy formulation Having carried out strategic analysis and environment analysis of IndiGo Airlines, which is a cost leader in LCC segment in Indian schedule carrier industry, next step is to follow appropriate strategy formulation approach. It is felt that an integrated approach may suit this scenario. It is recommended that War room and Rapid Prototyping approach should be used simultaneously. 2.1 War room is a separate room designated in the organisation meant for visual representation of issues and strategic options available to the firm. In addition to various strategic options, individual tradeoffs and specific highpoints of each option can also be represented. This facility can be used in many situations like strategy formulation as well as tactical problem solving which involves many variables and is complex in nature. Whenever there are many stake holders involved in problem solving it is a good practice to meet up at the war room and work out a better solution. 2.2 It is proposed to organise war room in three areas. a) First area consisting of story board visualization of IndiGo Airline covering functional areas of critical importance. It should start with a
  • 6. happy and satisfied customer in the last and work backwards depicting various strategic possibilities. b) Second area depicting strategic options to manifest stated mission and vision, also spell measurable outcomes like market share and other KPIs. c) Third area is proposed to depict perceived pro and cons (analysis) of each approach. Story board depictions for Indigo Airlines, its operations and business environment is as shown in the Annexure-I, Few slides depicting possible strategic options is shown in Annexure-II. The mission and vision statement of IndiGo Airlines states Low fares, on time Performance and Hassle free travel. This mission is quite elaborate and covers full ambit of any airline operations. If we see clearly this mission aims at excellence in overall operation, offering differentiation only in priority. It is inferred that first priority of management should be low fares. The second priority is declared as on time performance and comforts of travel are targeted at the third priority. In short this mission statement is fact a prioritization of full ambit of any successful airline. Rapid Prototyping approach Airline industry is essentially a service industry and very conducive to try Rapid Prototyping approach in some destinations or some segments. IndiGo can try finalized strategy in some geographical areas to check its performance before that strategy is rolled out across entire market. 2.3 Strategy: a) It is proposed to achieve and sustain, lowest operating cost in the market and aim to be cost leader in LCC segment in domestic carrier market in India. b) Aim to be in top two, on time performance leaders in domestic operations as published by DGCA on annual basis. c) Aim to sustain, among top two positions in customer satisfaction index, published by DGCA.
  • 7. 2.31 In order to be a cost leader IndiGo would have to control the major cost elements in its operations. The top 3 Costs for any Airlines are: a. Fuel b. Labor c. Maintenance Approaches for Success include Effective cost cutting strategies, Fleet commonality, Long-term vision and reasonable capital costs. In order to effectively operationalized cost leader strategy it is desirable to target all three constituents of cost function of operations group without hurting efficiency or performance. In order to formulate the larger strategy of achieving Cost Leadership, it is recommended to break down the larger strategy into few sub strategies. a) Fuel hedging: Fuel is one of the largest operating costs of airlines. When airlines believe that the fuel price won’t drop in the future, they can sign a contract to buy for a period of time at the current price. In the future, if the fuel price increase, they get benefit, in contrast they paid the higher fuel prices. Most Airlines use fuel hedging to regulate and stabilize their operating costs for planning purposes. b) More seats: The LCCs can sell seats at cheaper fare, and they can also increase revenue by arranging more passengers on the plane. For example, an LCC can go in for Boeing B737-400 aircraft configuration to accommodate 168 passengers, while other full service carrier retains the configuration at 144 or 150 passengers. c) Labour and maintenance cost analysis should be conducted at a professional level and by using latest data analytics. Decision to conduct maintenance by own staff and hire full time labour for sundry jobs, should be subjected to criterion test periodically to validate the continuation of practice. If it is profitable to enter into alliance for any of the above mentioned services, local managers should be encouraged to decide for their zones and go for contracting or self work based on profitability. 2.32 In order to achieve on time performance it is essential to identify the constituents of this KPI and take effective steps to actively manage each one of them. Once identified, each parameter is to be owned by some designated manager and its outcome is to be controlled by an effective mechanism of incentives (if targets met) and explanations (if not met).Purpose of analysis is
  • 8. not to de incentivize concerned manager, but to examine reasons and take effective steps to avoid recurrence. Approaches for Success include steady and moderate growth strategies, incentives for managers achieving on time performance in their area of responsibility and removal of impediments for desired performance. Efforts should be made to analyse any failures / repetitive issues and their speedy remedies. A flexible system for use by regional managers to shift capacity will significantly increase value-for-money opportunities and ensure on time performance. 2.33 In order to achieve top two positions at the customer satisfaction index we need to highlight its factors. Customer satisfaction is regarded as one of the most indispensable elements playing a vital part in determining the success for any Airlines. It is defined as an emotional or affective response which manifests when meeting with any kind of service. After service is provided, a positive or negative reaction will emerge from customers getting that service. Perceived Service Quality is evaluated thoroughly by the actual performance of one service rather than the expected performance in a specific context. Higher level of service quality will lead to higher level of customer satisfaction thus service quality and customer satisfaction is intimately connected. service quality could become an efficient tool to approach and achieve the highest level of customer satisfaction. On-Ground Services are among important factors affecting service quality that cannot be ignored in aviation context. Ensuring and providing good on-ground services can leave initially strong impression on passengers when they first get to know about the airlines. These services consist of all the activities such as the stage of gathering information about airports, airlines, flights; reservations and ticket purchases; airport check-in process. Also, food and drink catering, baggage handling, lounge services are some of the items that are included in on- ground services as well. Tangible Factors is “the appearance of physical facilities, equipment, personnel, and communication materials”. In aviation industry, we can associate tangibles factor with the appearance of staff and cabin crew, in-flight facilities. In-flight facilities are comprised of seat comfort, cleanliness of aircraft interiors, appearance of cabin crew, in-flight equipment like reading
  • 9. lights, call buttons, air-conditioners, etc. and entertainment facilities like newspapers, TV screens, video games, etc. Tangibles could also relate to the quality of food and beverage served on board as well as seat comfort like seat materials, pitch and size. These factors can play a fundamental role in forming customers‟ perception of the general service quality. Reliability is one of the most essential service quality dimensions in the air service industry. It is the consistency of the service provided and doing it accurately and dependably the first time. Responsiveness is regarded as the Airlines’ readiness and willingness to provide and deliver the effective and qualified performance to assist its customers in any circumstances. In aviation context, “responsiveness” can be regarded to flight attendants or ground employees‟ willingness to help passengers. Also, it can refer to all the activities including prompt handling of complaints, prompt service delivery, timely and efficient guidance to assist passengers or quick response to their requests. Assurance is one of the most important dimensions in having a significant effect on customer satisfaction in the air service industry. Assurance that “customer satisfaction is the outcome of the evaluative process between the impression during or after service is the employee’s hospitality and kindness as well as their ability to build trust and reliability in customers, such as competence in performing the service, politeness and respect for the customer. Empathy is the act of showing concerns and care towards customers‟ personal matters; a real, sincere attitude and attention in solving their problems. This dimension consists of all the characteristics such as thorough understanding, dedication, sincerity, sensitivity, attentiveness towards customers‟ wants and needs. Empathy helps firms to understand their customers deeper as well as improving the overall service to assist customers in the future. Also, in any context, showing empathy can bring people closer and narrow down the gap of the relationship between them. Safety Records For many passengers, delivering a good service through three stages (pre-flight, on-flight and post-flight services) is an imperative condition to reflect good flight experience. However, safety record is the factor which
  • 10. should be put in first priority since it can exert a strong effect on the process of customers‟ decision-making. Since there have been many air risks and casualties caused due to weather conditions, flight crashes, terrorism and even pilots‟ own mistakes been reported throughout the years, passengers tend to highly evaluate the safety records of whichever airlines they opt for because life security is the most important thing. Brand Image is more and more acknowledged as being indispensable assets that play an essential role in the marketing strategy. “Brand names tell the buyer something about product quality” and customers when they purchase or use the same brand of a particular product or service, they know about the quality of that product and service they are about to receive. In the airlines industry, the objective of the brand image is to gain a competitive advantage with the purpose of separating its name, logo, symbol to become exceptional from a diversity of tough opponents. Approaches for Success Most of the factors mentioned above indicate towards response shown by airline employee towards passengers. In most cases employees can be trained to respond in a particular fashion when interacting with passengers. Unfortunately not all interactions can be anticipated and even the lowest employee could be the flag bearer of the company’s reputation at times. This stipulates high moral and judgmental capabilities of employees at unforeseen times and requires them to respond with compassion. The only approach in this regard is to train extensively and reward positive behavior by employees. 3. Strategy analysis For analysis purpose the strategy of positioning as cost leader in LCC segment in domestic carrier market in India is chosen. Under this principle strategy it is proposed to analyse granular strategies as well. It is assumed that secondary strategy of reducing fuel costs and lowering labour/maintenance costs are to be achieved.
  • 11. 3.1 Framing of options: It is hypothesized that: a) Fuel hedging for 75% of total fuel consumption and b) Out sourcing maintenance and labour at 10 least profitable destinations will propel IndiGo Airlines to be the Cost leader in LCC segment in India. 3.2 Core assumptions: any assumption should be subjected to basic tests, for checking their validity by using objective criterion. Core assumptions in these strategic options are i) Fuel hedging will result in substantial price stability and lesser fuel costs. ii) Contracting out maintenance and labour at less profitable destinations will result in streamlined operations and enhance profitability. a) Value test. It is seen that fuel hedging to some varying degree is a common practice by LCCs in India. Considering that crude prices are at historical low value it is safely assumed that entering into long term hedged fuel contract will surely offer great competitive advantage to IndiGo Airlines. Ten destinations have been identified by carrying out ABC analysis of total destinations of IndiGo and are at the bottom of performance chart. Out sourcing operations at these destinations will certainly reduce cost of operations. This strategy passes the value test. b) Execution Test. It is observed that there are many professional Hedging companies in India which offer services at very competitive price. Hedging fuel contracts which many domestic and international Fuel companies offer are of International standard and their execution is very feasible in India. Indian legal framework supports elaborate contracts regarding outsourcing and sharing manpower for sundry jobs, even by competing airlines. Most airlines in India are already using such contracts. It is observed that proposed hypothesis passes execution test as well. c) Scalability Test. this hypothesis passes the scalability test as fuel hedging can be scaled up or down on yearly basis. Nowadays fuel hedging contracts are available on quarterly basis as well. Regarding scaling up of out sourcing
  • 12. maintenance and other non core functions, situation is very conducive. We can scale up any time and at any pace deemed fit. This strategy is scalable. d) Defensible test. Fuel hedging and out sourcing in it are no innovations, but the manner in which they are used and implemented could be a differentiation for IndiGo Airlines. It is recommended that top notch consultants are hired to finalize hedging contracts and performance should be reviewed periodically. Regarding out sourcing non core activities at unsustainable destination, operations analytics can be used to arrive at the best solution. If confidentiality of techniques and tools used for analytics and selection and evaluation criterion for continuation with the hedging contract firm is maintained, then this strategy will be defensible. 3.3 Next Steps It has been clearly observed after hypothesis testing that the assumptions of this strategy are strong and valid. This strategy if followed and implemented correctly will yield desired results. Immediate steps to be taken for IndiGo Airline Management for implementation of this strategy includes following steps. i) Finalize consultant for fuel hedging and revisit percentage of fuel to be hedged. Fuel hedging percentage of other LCCs in Indian market and their performance can be used as a benchmark. ii) Enter into hedging contracts on monthly or quarterly basis slowly scaling up or down the hedging level considering seasonality factor. iii) Task IndiGo finance department to carry out ABC analysis of maintenance costs and noncore labour costs at less profitable destinations. iv) Prepare a list of 15 least profitable destinations. v) Prepare alternatives after exhaustive analysis, at these destinations. vi) Negotiate with other firms offering services at less than own cost. vii) Finalize ten best deals and implement.
  • 13. 3.4 List of sources: i) http://www.global-riskmanagement.com ii) www.mercatusenergy.com iii) Jet Fuel Hedging Strategies: Options Available for Airlines and a Survey of Industry Practices Richard Cobbs Alex Wolf iv) www.arvatoindia.com v) Airlines turn to outsourcing to keep lid on costs By Jane Wild @ http://www.ft.com/ vi) www.ascendforairlines.com/2014-issue-no-4/airline-outsourcing 4. Strategy implementation Proper implementation of proposed strategy is critical to the success of any strategy. As we have adopted two pronged strategy of achieving cost leadership position, study of implementations should cater for this complexity. 4A model application and discussion will cover aspects related to implementation issues pertaining outsourcing strategy and fuel hedging implementation. In order to successfully implement this two prong strategy, managers at Indigo will have to follow PDCA approach, i.e. plan do check and Act. Broad implementation plan is given in section 3.3 of this assignment. 4A model for testing execution capabilities of Indigo Airlines is focused on its four key domains .It is pertinent to note that various inputs for this discussion have been obtained from open sources from the internet and are purely academic in nature. These domains are: a) Alignment b) Ability c) Architecture, and d) Agility
  • 14. 4.1 Alignment issues at IndiGo Airlines. IndiGo Airline has been externally and internally aligned and this fact has been demonstrated amply by its recent performance. IndiGo Airlines has a lean and focused management which is performance driven. Top management is highly technology driven and are known to have deployed state of the art analytic and real time Aircraft location monitoring solutions. Passenger Complaints during the month. (Source DGCA) During May 2016, the number of complaints per 10,000 passengers carried for the month of May 2016 has been 0.3 for IndiGo airlines. OTP at four metro airports for the month of May 2016 is 83 % and is next only to Air Asia and Vistara. This is a clear indication of good external alignment resulting in good performance delivery. IndiGo Airlines operates the specialized iFly Learning and Development Centre is where its staff is trained extensively is known to be the best in India. Various processes and SOPs are standardized and continuously improved. It helps IndiGo Airlines to align its employees with organizational aims. 4.2 Ability. Indigo has a lean and very capable management team at the helm of affairs. Aditya Ghosh, 36, President, IndiGo Was General Counsel of InterGlobe Group at 28.He was elevated to head IndiGo at 32. IndiGo has zoomed past heavyweights like Jet Airways, Kingfisher. His stated mantra for success is “to be accessible to employees”.
  • 15. InterGlobe Air Transport, the holding company of Indigo Airlines provides management consultancy and support to IndiGo. InterGlobe Air Transport (IGAT) is a leading airline management company in India. With a portfolio of 10 of the world’s most respected international airlines and IndiGo, the company manages a broad spectrum of passenger and cargo operations. They provide cutting edge route and revenue management services. Leveraging its existing businesses, the company is now diversifying into airline related services such as Duty-Free operations, ground handling and cabin crew management. Considering impact and viability of our under study strategy, due to organizational ability perspective, it is inferred that IndiGo has adequate ability to implement these strategies. As pertaining finalizing Fuel hedging consultant, it is one time exercise .Considering the vast experience IGAT has in this field it can be safely assumed that the team will do a good job. As IGAT has its presence across many countries, they can enter into fuel hedging contract on a global basis there by reducing costs further. Internet search indicates IGAT and Indigo has employed many top notch business Analysts with top international qualifications. It implies that Indigo management will not have any problem in analysing identifying underperforming destinations. Once these destinations are identified finance department should not have any problem in financing simple service contracts with suitable firms. It is inferred that IndiGo Airline has required ability to undertake proposed strategies. 4.3 Architecture IndiGo Airlines has a lean centralized structure based on operational efficiency and performance. Most of the KPIs are published and the whole system revolves around real time feedback to concerned manager. Most of the employment is based on two year contract renewable every two years. Organisation is small and geared to quickly respond to various contingencies. Top management is easily accessible for any decision. Payments to employees are not amongst the best in industry and Indigo was able to scale up operations as employees were worried about even worse conditions like irregular salaries or closing down of many other airlines. Considering effect of organisation architecture on implementation of proposed strategies, it is opined that organisation architecture will not be an impediment for both of these sub strategies. However in the foreseeable future, as IndiGo scales up operations the inherent organisation structure will need to be strengthened. With Indian government
  • 16. announcing opening up 100 % FDI in civil aviation, many International airlines may want to set up fully owned operations from India. The cost advantage which IndiGo used to leverage by paying less wages and having part time employees and interns may not last longer. They will have to enhance efficiency and job security of employees to retain talent. More over as the complexity of operations and scale increases manifolds, central monitoring and intervention system may get overwhelmed and degrade. IndiGo may have to go in for some regional operations concepts to retain competitive advantage. 4.4 Agility It is ability of an organisation to adapt to changing environment. As pertaining impact on the proposed strategies, of Indigo’s inherent agility it is opined that it has desired agility. Indigo has a lean operations team which is renowned for precise performance driven operations. There are no managerial silos or bureaucratic delays to slow down decision making. In addition excellent international class training facilities reorient middle level managers towards delivery and performance. Organisation learning is insured by having an umbrella consultant team which oversees operations and provides management consultant services to aviation businesses across the globe. Agility and ownership of decision is ensured by a very objective performance evaluation system, which is also used for term contract renewal of mid level managers. IndiGo Airlines owing to its very lean central team exhibits very high and dynamic leadership unity and they are also able to achieve high Resource fluidity. Considering these aspects it is opined that IndiGo Airlines has enough Organisational agility to successfully implement proposed strategy. 5. Conclusion In order to plan and execute winning strategy effectively all the stages of analysis, formulation and implementation have to be operationalized in synergy. Starting point of Indigo’s strategy was its mission and vision. During the process of analysis it was noticed that in the LCC space, where safety and on time performance is more or less ensured by regulator, there is very little space for offering differentiation. Technical innovations in the shape of better aircraft are
  • 17. hard to come by and are known to all operators years in advance. In this market if some operator has to survive, then management has to focus on cost leadership. It was observed that IndiGo has used innovative means to cut cost, by multi tasking check in staff. Even X Ray machines, where other operators have positioned helpers, Indigo has done away with helpers and pasted notice for Indigo passengers to load their luggage by themselves. These small cost cutting steps speaks volumes regarding cost consciousness and focus by management. During the process of strategy formulation, usage of various approaches including War Room were studied and employed to elucidate strategy formulation. Various options were thought of and hypotheses were tested against objective criterion. Finally the winning strategies of Fuel Hedging and out sourcing non core activities at least profit making destinations were selected for implementation. While planning for implementation the strategies were again subjected to organisation ability, agility, architecture and alignment. These tests bring out the soundness of proposed strategy. Finally the proposed strategy is recommended for execution as discussed in the plan. 6. Addendum of exhibits and citations: 1. http://www.global-riskmanagement.com 2. www.mercatusenergy.com 3. Jet Fuel Hedging Strategies: Options Available for Airlines and a Survey of Industry Practices Richard Cobbs Alex Wolf 4 www.arvatoindia.com 5 Airlines turn to outsourcing to keep lid on costs By Jane Wild @ http://www.ft.com/ 6. www.ascendforairlines.com/2014-issue-no-4/airline-outsourcing. 7. http://dgca.nic.in/reports/Traffic-ind.htm