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Indigo Case study

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SREEKANTH N | PGDBT201815
Executive Summary
• IndiGo is a low-cost airline headquartered at Gurgaon, Haryana,
India.
• The airline was founded as a private company by Rahul Bhatia of
InterGlobe Enterprises and Rakesh Gangwal, a United States-based
expatriate Indian in 2006.
• It took delivery of its first aircraft in July 2006 and commenced
operations a month later.
• Tagline of the company is “Go Indigo”.
Executive Summary
• IndiGo is India’s largest
passenger airline with a
market share of 43% as
of November, 2018.
• Currently operate flights to
64 destinations
• 49 domestic and
• 15 international.
• Total no of employees :
14,604 (March 2017)
Primarily operates in India’s domestic air
travel market as a low-cost carrier
with focus on our three pillars offering :
On-time
Executive Summary
Facts and Figures
• 10 consecutive years of Profitable
operations
• Market share of 43% as of November, 2018
• Fleet of 204 aircraft including 65 new
generation A320 NEOs, 126 A320 CEOs, 12
ATRs and 1 A321 NEO.
• Recognized as ‘Great Place to Work for in
India’ for 8 years in a row (2008- 2015)
• Named as Aon’s Best Employer for the year
2016 and 2017
Facts and Figures (FY 2017–18)
Revenue ₹239.68 billion(US$3.3 billion)
Net income ₹22.43 billion(US$310 million)
Total assets ₹211 billion(US$2.9 billion)
Total equity ₹70.77 billion(US$980 million)

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Indigo Case study

  • 1. SREEKANTH N | PGDBT201815
  • 2. Executive Summary • IndiGo is a low-cost airline headquartered at Gurgaon, Haryana, India. • The airline was founded as a private company by Rahul Bhatia of InterGlobe Enterprises and Rakesh Gangwal, a United States-based expatriate Indian in 2006. • It took delivery of its first aircraft in July 2006 and commenced operations a month later. • Tagline of the company is “Go Indigo”.
  • 3. Executive Summary • IndiGo is India’s largest passenger airline with a market share of 43% as of November, 2018. • Currently operate flights to 64 destinations • 49 domestic and • 15 international. • Total no of employees : 14,604 (March 2017) Primarily operates in India’s domestic air travel market as a low-cost carrier with focus on our three pillars offering : On-time
  • 5. Facts and Figures • 10 consecutive years of Profitable operations • Market share of 43% as of November, 2018 • Fleet of 204 aircraft including 65 new generation A320 NEOs, 126 A320 CEOs, 12 ATRs and 1 A321 NEO. • Recognized as ‘Great Place to Work for in India’ for 8 years in a row (2008- 2015) • Named as Aon’s Best Employer for the year 2016 and 2017
  • 6. Facts and Figures (FY 2017–18) Revenue ₹239.68 billion(US$3.3 billion) Net income ₹22.43 billion(US$310 million) Total assets ₹211 billion(US$2.9 billion) Total equity ₹70.77 billion(US$980 million)
  • 7. Services • Being a low-cost carrier, IndiGo offers only economy class seating. • To keep fares low, • IndiGo does not provide complimentary meals in any of its flights • Though it does have a buy-on board in-flight meal programme. • No in-flight entertainment is available. • IndiGo offers premium services, where the passengers can avail additional benefits like a pre-assigned seat, multiple cancellations and priority check-in at a higher fare.
  • 8. Airline Industry Origin • FIRST AIRLINE – DELAG (1909) • The world’s first Airline was DELAG, Deutsche Luftschiffahrts- Aktiengesellschaft which is also called German Airship Transportation Corporation Ltd. This airline was founded on November 16, 1909 with the assistance of government, and operated airships manufactured by The Zeppelin Corporation in Frankfurt. This DELAG Company operated as a passenger Airline until 1935 till its operations were overtaken by the newly formed Deutsche Zeppelin Reederei.
  • 9. Airline Industry Origin • FIRST Commercial Flight (1914) • On the morning of January 1st in 1914 the first fixed wing scheduled air service Commercial flight flew across the bay from St. Petersburg, Florida to Tampa, Florida which took 23 minutes to cover 18 miles (29 kilometers). This was 11 hours less than travelling by train from St. Petersburg to Tampa.
  • 10. Airline Industry Timeline in India • 1910: The first Indian, or maybe even Asian, to have an airplane is the young Maharaja of Patiala, Bhupinder Singh, who has a keen interest in aviation. Singh sends his Chief Engineer to Eurpoe for a study with orders to buy three planes, including a Bleriot monoplane and Farman biplanes, which arrive in the Punjab later that year. • 1911: Domestic commercial aviation is born in India when on February 18, Henri Piquet, flying a Humber biplane, carries mail from Allahabad to Naini Junction, some six miles away. • 1927: The world’s first officially christened national airline’s, Britain’s Imperial Airways extends to Empire Routes to India, connecting India with the outside world for the first time through an air network. It is also the first domestic passenger flight to be operated in India. Passengers could be for the first time fly from Karachi to Jodhpur and to Delhi on Imperial Airways.
  • 11. Airline Industry Timeline in India • 1932: JRD Tata launches India’s first scheduled airline, Tata Airlines, by piloting the first flight himself from Karachi to Mumbai via Ahmedabad on a single-engine. • 1933: In its first year of operation. Tata Airlines flies 160,000 miles, carries 155 passengers and 10.71 tonnes of mail. In the next few years, Tata Airlines continues to rely for its revenue on the mail contract with the Government of India for carriage of surcharged mail, including a considerable quantity of overseas mail brought to Karachi by Imperial Airways. • 1945: India’s second domestic airline, Deccan Airways, is founded Seventy- one per cent is owned by the Nizam of Hyderabad, 29 per cent by Tata Sons. Deccan Airways is the first of a bunch of new airlines to serve domestically in India. It flies in the Hyderabad region, using a fleet of 12 Douglas DC-3s. The first services began in July 1946.
  • 12. Airline Industry Timeline in India • 1946: Tata Airlines changes its name to Air India. In 1947, Air India signs an agreement with the government of India to operate international services under a new company called Air India International Ltd. • 1953: Indian Airlines and Air India International are set up after legislation comes into force to nationalize the entire airline industry in India. Eight former independent domestic airlines are merged to from the domestic national carrier. • 1960: India enters the jet age when Air India begins operating its first Boeing 707-437. It also marks the year in which USA is first connected to India by an Indian airliner.
  • 13. Airline Industry Timeline in India • 2003: Air Deccan, India’s first ever budget airline begins operations on 25th August. The first flight is from Bangalore to Mangalore. • 2004: On August 26, Air Deccan turns into the first truly national budget carrier with the launch of its A320 flights on the Delhi – Bangalore route.
  • 14. Aviation Business Model Legacy airlines (Full Service Network Carriers) Low cost airlines (Low Cost Carriers) Charter Airlines (Holiday Carriers) Regional Airlines Cargo Airlines Hybrid Airline
  • 15. Legacy Airlines • A former national airline which has been privatized to some extent over the years. • Generally have a fairly large fleet, which is quite diversified as they are operating all sorts of routes and regional flights. • Have been around probably ever since airlines existed. • Legacy airlines have also the benefit of owning (at least a share) of relevant other aviation services such as handling companies at their hub airports, maintenance facilities and catering companies.
  • 16. Legacy Airlines The main income drivers for legacy airlines are: • Good reputation, which provides for good business with corporate and governmental clients • A broad set of connecting flights, allowing for long haul journeys from small airports on one ticket, with one airline • Increased comfort through on board meals, baggage charges which are included in the main fare and airport lounges for business and first class passengers • Very diversified fares, starting with almost low cost “last minute” or “first minute” tariffs and ending with really expensive business class and first class seats • Convenient loyalty programs which offer reasonable rewards for travelling with a given airline (or, more frequently, with a given airline alliance) • Reliable and slowly changing timetable, leaving passengers with a decent level of security with respect to flight connections they require
  • 17. Low Cost Airlines • Low Cost Carriers (LCC) are huge on reducing costs to the bare minimum and making people believe (rightfully, in most cases) that they are being offered the lowest fare possible on a given route. • The low cost business models assume that price sells itself and are generous on advertising campaigns as the passenger needs to know that the given low fare is actually available on the market. • As all Low Cost Carriers need to comply with the airline regulations which apply to all airlines, regardless of airline business models used, they do not save money on things like maintenance . • The savings are generally based on passengers not getting expected benefits from their ticket, but having to pay for them instead.
  • 18. Low Cost Airlines Here’s what will generally not be included in a standard airfare and charged extra from passengers who actually need the service: • In-flight meals – No free meal included, only inflight purchases. • Reserved seating- Low cost airline business models generally assume what is called “free seating”, which means that the first passenger in gets the best seat. This means savings on the reservation and boarding system. • Priority customers- Low Cost Carriers offer paid “priority boarding” which means that passengers who pay additional fees are allowed to board the aircraft before the other ones. • No baggage (or very limited baggage) included in the airfare. Passengers generally need to pay additional fees to have their luggage transported with them. • Additional charges for things such as payment by credit card online., but they are charged additional fees in low cost airline business models.
  • 19. Low Cost Airlines Most low cost airline also take advantage of other savings possibilities, which are not entirely associated with charging passengers for services, which for quite a long time have been considered as naturally included in the fare. Those savings come from: • A very unified monotype fleet, which allows for saving coming from maintenance, employer costs associated with type diversification • Very extreme contracts with maintenance providers forcing them to pay penalties for many delayed or cancelled flights • No connecting flights. The low cost airline business models assume that the only connection that is being offered is point to point. This saves much on reservation software and check-in fees as well as reduces costs associated with delays. • Special arrangements with regional or low cost airports, which gives the Low Cost Carriers a dramatic advantage in landing fees and other associated costs.
  • 20. Charter (Holiday) Airlines • Charter airline business models relies on holiday excursions offered by several companies offering holiday trips all over the world. • In most cases, they do not sell individual tickets. Rather, they sign appropriate contracts with travel agencies for the transport of a given number of passengers to a given location throughout a year. • It becomes the travel agency’s responsibility to fill the aircraft with passengers. • In some cases, one aircraft may be chartered by more than one travel agency if the destination is rare enough to cause one tour operator not being able to fill the aircraft. However, also in that case, the charter airline is secured as the entire aircraft is being sold.
  • 21. Charter (Holiday) Airlines There are several advantages to such airline business models, such as: • No direct sales, which makes making investments into marketing and reservation systems unnecessary. • Secured cash-flow provided appropriate agreements with tour operators are signed before each fiscal year • Low cost customer service issues, as the charter operators often use the techniques applied by low cost airline business models such as no included meals on board or payment for additional luggage.
  • 22. Regional Airlines • Regional airline business models, as the name suggests, aim at transporting people from smaller, regional airports to larger hubs or between those airports. • Thus improving the given countries overall social movability. • It also needs to be said that those airlines generally encounter slightly smaller operating costs due to the usage of • smaller aircraft, • cheaper regional airports and • a significantly smaller number of passengers. • These leads to much lower booking and ticketing costs.
  • 23. Regional Airlines • The regional airlines tens to find their income streams from: • Tickets sold on minor routes with frequent travelers, especially in areas where alternative means of transport are difficult, costly, inconvenient or a mix of all of those attributes • Agreements with large companies which need to provide their employees with a viable means of transport from home to work • Government subsidies for local areas which need to be connected with the rest of the world despite of it being economically unviable • Flying in a franchise for other carriers (mainly legacy airlines) and “feeding” passengers to their hubs for further travel, especially on long haul flights.
  • 24. Cargo Airlines • Airlines which make their living out of transporting good for forwarders or big shipping companies. • Generally operate at night and do not have any costs associated with the transport of people. • They are highly dependent on proper contracts with forwarding and shipping companies, which generally require a very high level of service. • This in turn means for the cargo airlines additional costs associated with ensuring absolutely perfect reliability.
  • 25. Hybrid Airlines • Hybrid airlines run on the idea of low cost company model where they accommodate passengers and offer them exceptional services. • The idea of sticking to lost cost operations are taking over the Aviation Industry rapidly. This include point-to-point routes and seat- only business over the internet. • Companies are switching over to the Hybrid mode of operations because of the fact that they can't run on two different routes with same facilities, same costs which are forcing it to loses. • Instead, they're adapting ways to reroute the operations of certain routes in a way to rebrand it and optimize as per the costs.
  • 26. Business Model of Indigo Airline Operations Marketing Financial Aspects Vision Influence
  • 27. Operational Aspect • Single type of aircraft - Indigo's whole fleet consists of A-320-232. This results 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 upgradation costs. • 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. • 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.)
  • 28. Operational Aspect • Fuel: Domestic fuel taxes can be as high as 30 per cent. 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 aircrafts 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. They are also involved in fuel Hedging after government allowed it in 2007.
  • 29. Operational Aspect • Route Planning: Indigo operates over a lesser number of destinations than its competitors but with a higher frequency. 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.
  • 30. Operational Aspect • 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.
  • 31. Operational Aspect Other cost-cutting measures: • 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. Having a single make of aircraft again helps in this regard as the time taken by the crew gets optimized. • Employee Aircraft ratio - Lower employee aircraft ratio of 102 compared to Jet Airways's 130 and Air India's 262. • No Inflight Entertainment • 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. • Most Indian airlines take delivery of aircraft by sending their own pilots and engineers. 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.
  • 32. Marketing Aspect • In Flight Meals • Priority Customers • Web Check-in • In flight Merchandise Sales
  • 33. Marketing Aspect • Little advertising spend. • 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. • 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.
  • 34. Financial Aspect • Debt: IndiGo has gone on record to say that the company has practically no debt. This is not the case for other airlines - Air India, Jet Airways and Spice Jet all have huge debts which were taken to finance expansions. A large debt leads to a considerable portion of revenue going to service the debt. • Sale and Leaseback: 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. A bulk order implies better bargaining capability with the manufacturer while buying and better returns when the aircraft are later sold using Leaseback agreements.
  • 35. Vision Aspect • Large aircraft orders • Phasing out of aircraft older than 6 years • Indigo's highly connected flight network to which a new destination is not added unless it can be connected to at least 2 other destinations point to a highly planned long term growth trajectory.
  • 36. Influence Aspect IndiGo is privately held by two very low key people. • Rahul Bhatia, who is in charge of operations. He has almost two decades of experience in the travel business and, some say, contacts in the government acquiring more profitable slots and routes. • Rakesh Gangwal who has a long history in the US airline industry. He brings global networking and expertise to IndiGo which helps in better bargaining with manufacturers and other suppliers.
  • 38. STRENGTHS • Positive Image • Corporate Social Responsibility • Indigo Airlines has strong backing promoters and is one of the largest low cost carriers in India • Only LCC to make consistent profits • Fleet Strategy • Indigo Airlines has one of the major airlines in India in terms of market share • Indigo Airlines has entered international markets has boosted its brand value • Good advertising and marketing strategies have increased its brand recall • Services offered - Excellent offerings and on-board services provided by Indigo Airlines • Highly drive workforce-More than 10000+ employees are with Indigo serving more than 40 million passengers
  • 39. Weakness • Sustaining profits • Indigo airlines has limited market share growth due to intense competition • Still has to establish itself on international destinations • Not on too many routes.
  • 40. Opportunities • Growing demand for foreign travel • Largest market share among LCCs in Indian Market • Middle class taking to the skies can be a huge opportunity for Indigo airlines • Untapped cities
  • 41. Threats • Unfavorable Govt policies • Labor cost increased • High fuel costs and taxes • External Factors – Technological advancements, Different Products • Competition from other LCC’s • The grounding of aircraft • Rising Labor costs
  • 42. Competitors • Below are the 5 main Indigo Airlines competitors : • Jet Airways • Vistara • Air India • Go Air • Spicejet