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Indigo airlines case study

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Indigo airlines case study

  1. 1. Case Study in International Business Strategy Submitted by – BKC, Mumbai Anurag Nagaria Anil Agarwal Joshil A. K. Kedar Marathe Nilesh Mashru Tanmay Shah Waris Imam
  2. 2. India’s fastest growing Domestic AirlinesExpected to take the top spot by 2015 as perThe Centre for Asia Pacific Aviation (CAPA)21% of the domestic market share, behind thecombined low-cost and premium operationsof Jet AirwaysIndia’s best On-time performance & leastflight cancellationsHighest load factor of 89.40%IndiGo going International
  3. 3. 60 Million PassengersServed – 90 MillionDomestic Passengers/ 20Million InternationalPassengers45 Million Tonnes of cargohandledOperations with 920Airlines, @ 4200 Airports,with 27000 AircraftsInbound Air traffic from 87Foreign countriesOutbound Air traffic to 40countriesInternational Passengersgrowing at CAGR of 14%
  4. 4. Rising income levels and Attraction of foreign shores: profile: demographic profile Foreign Equity Allowed: Domestic Airlines entitled to Highest % of Indian49% Foreign Equity & 100% go overseas after 5 years of Population in working age NRI investment allowed. domestic operations. group of 20-50 with high earning potential Growth in Indian Tourism Emergence of Low Cost Industry: Industry Airlines: Airlines Open Sky Policy between India Consumer preference shifting & SAARC countries & increase to performance compared to in bilaterals with EU & USA. glamour & luxury services
  5. 5. Entrants: Threat of New Entrants Suppliers: Bargaining Power of Suppliers Low product differentiation in basic services Duopoly in Aircraft Market – Low bargaining Low Switch Costs for Customers but high switch power with Airlines costs for Airlines Switch cost to other suppliers is high Open Sky Policy allows foreign Entrants Shortage of Commercial Pilots in India Very High Setup Costs Limited Suppliers for ATF in India Increasing Fuel prices Scope for Suppliers to forward Integrate Shortfall + High Cost of Skilled resources - Pilots Rivalry: Competitive Rivalry Buyers: Bargaining Power of Buyers Very little product differentiation in services High number of buyers fragmented – lowers Mature Industry – Only Scope for growth by their powergaining other player’s market share With high number of buyers, growth High bargaining power of Suppliers opportunities are also high No sense of brand loyalty amongst customers Switch costs are minimal for buyersand can easily switch to other airlines No scope for backward Integration Substitutes: Availability of Substitutes Indirect substitute are Railways – but not powerful as Airlines score highly in the travel time Travel by Airlines a Status symbol However direct substitutes are other LCC – since switch cost is low between airlines, threat of substitutes is high
  6. 6. Threat of New EntrantsAvailability Bargaining ofSubstitutes Indian Power of Suppliers Aviation Industry Bargaining Competitive Power of Rivalry Buyers
  7. 7. JetLite 7.3% Air India 17.9% Jet Airways 21.9%King Fisher Indigo 6.4% 21.9% Spice Jet Go Air 17.1% 7.5%
  8. 8. 600 100% 90% 500 80%Passenger Traffic (lac) 70% 400 60% 300 50% 40% 200 21.90% 30% 19.90% 15.40% 17.00% 20% 100 10.30% 4.00% 5.00% 10% 0 0% 2006 2007 2008 2009 2010 2011 2012 Indigo (lac) 10.71 16.06 38.05 65.42 83.06 104.22 122.97 Other Airlines (lac) 256.99 305.14 331.35 359.38 405.54 419.48 438.53 Indigo Market Share 4.00% 5.00% 10.30% 15.40% 17.00% 19.90% 21.90%
  9. 9. Emergence of the Great Indian middle classwilling to spend money for swifter travelFor the Individual on the Go,who values timeand on- timlinessBudget travel is not cheap travel, Quality ofService Mission Statement : To be the best Airline in India by providing the following values to the customer: - Affordable Fares - Ontime performance - Hasslefree Service
  10. 10. Strengths Weaknesses Opportunities Threats•Business Model •Less •Freight market •High ATF prices•High Brand Differentiation •Increased •Increasing Labour Awarness •Too many players Domestic Air Costs•Cost Leadership •Short lived traffic •Competitors &•High Efficiency innovations •International Increasing online•Innovation •Untapped Markets ticket reservations•Age of Equipment domestic cargo •Chartered services •Economic segment •Regional Slowdown•Tie Ups •No Established connectivity •Poaching•Continuous Alliances •Airport •Government Improvements •Lack of Product upgradation policies•Debt Free Depth & Breadth •Pressure on •Scarcity of pilots•Image Established •Cost inflation Carriers like Kingfisher & Air India
  11. 11. Fastest Growing Domestic Airline Co. o Youngest Domestic Airline Co o When IndiGo entered the arena they had to compete with mature competitors; recession world-over & spiraling costs due to sharp increase in crude oil prices Only Airline co. to make a profit Growing market share (No. 2 currently) “Indigo Airlines has been one of the airlineswhich has been eating away market share from its competitors”
  12. 12. IndiGo has won the following awards for its excellent serviceacross the Indian airspace- Best LCC by the Airline Passengers Association of India (2007) Best LCC at the Galileo Express Travel Awards (2008) CNBC Awaazs Travel Award for best low cost airline(2009) Safety Excellence Award by Rajiv Gandhi International Airport (2009) Most Admired Travel Product of the Year 2009 by SATTE (2010) Best Domestic Low Cost Service Airline for the Year 2010 by Travel Agents Association of India (TAAI) (2010) Safety Excellence Award by BIAL (2010) Skytrax Central Asias best low-cost airline award (2011)
  13. 13. •Turnaround Time •Limited Passenger service •Avoiding in-flight services•Aircraft Utilization •Low price tickets •No free meals•On-time performance for •Point to Point routes •Strategic usage of disposable time-sensitive travelers •Frequent & Reliable departures bags for quick cleaning of•Young fleet of aircraft (hence •Targeting high load factor aircrafts before landing less maintenance issues) •Highest no. of seats•Lower Employees per Aircraft •Light weight Seats•Fuel Efficient Engine•Zero Inventory of components •Internet Reservations•Low turnaround Times •Cost & Service Culture•Same Configuration of all •Human Resource Training on Aircrafts providing flexibility Efficient processes in allocation • Centralized Operations controls Centre •Highest no. of CAT-III compliant Pilots Operational Cost Leadership Positioning Efficiency & Competencies
  14. 14. Limited No Connections No Meals Passenger with other Service airlines IndiGo the 16 min No-Frills Airline gateFrequent & Turnaround Point to Reliable Point routesDepartures Highly Low Ticket Productive Standard Prices Crew Fleet of Trained Pilots A320 Limited Highly Internet use of Skilled Regular High Aircraft Ticket Travel Crew Training Utilizations booking Agent
  15. 15. People for Cargo ServicesBuisness travel People for Business travel Leisure Charter Leisure travel/Holiday Airways travel/Holiday
  16. 16. Costly to Easy toResources Value Imitate substitute Aircrafts High No No Human High No No Resources Brand Equity High Yes No Social Capital High Yes No Employee High No No relationship Fuel High No No
  17. 17. One type of airplane -brand-new Airbus A320sOne type of fare - lowOne type of customerservice - professionalOne type of route - servingdestinations within IndiaOne way to deal with delaysand cancellations –honestly
  18. 18. Be visible – go all outto project yourself asthe Future MarketLeaderGo Local – Connectwith the Middle classFocus on your CoreCompetencies andmarket themAim to compete withRailways in the longrunSynergies in offeringvalue added services –Holiday packages/Visa Services
  19. 19. Market Penetration & Differentiation More than 15 Within 14 days of With in 7 days ofLow Cost And High days prior to Travel travelQuality of Service travel •The Base fare •The base farePrice to be differentiated •With other could upto reach could reach uptowith respect to days fixed, Base upto 1500s 4500before the travel. fare would varyHigh seating density and 101-501load factor.No frills such as ‘free’food/drinks or loungesTargeting segmentslocally based on seasonsand festivalsRecently launched EMIoptions for consumersthereby expanding thepotential customer base
  20. 20. Communication Advertisement Objectives StrategyOn-timeperformance Airport HoardingsAffordable fares Social MediaHassle free Collaboration withpassenger Mutliplexesexperience. Magazines Sponsoring Events Collaboration wish banks/ credit card cos./ hotels/ websites Use of Regional Languages
  21. 21. Constant improvement in operational efficiency is necessary toachieve superior profitability, however it is not usually sufficientCompanies can compete successfully based on basis of Operationaleffectiveness, however staying ahead of rivals gets harder day-by-dayThe most obvious reason is rapid diffusion of best practicesCompetitors can quickly imitate with the help of outside consultantsor hiring managers from the leaderManagement techniquesNew technologiesInput improvementsSuperior ways of meeting customer needs“Any competitor can imitate any other airlines activities. Any airline can buy the same planes, hire same people, train the same way and match the menus and ticketing offered by other airlines”
  22. 22. IndiGo has the potential to become a global low-cost carrier,provided it can tide over the current slowdown.If it has the cash to sustain itself for another two years, IndiGo surelywill be one of the big players in the low-cost space globally with itsexpected fleet size of about 100 planes by 2016.At the moment, little is known about IndiGos financial healthbecause it is not listed on the stock exchanges and, therefore, doesnot have to put its profit and loss statement in the public domainevery quarter, though it is certain the company is in the red like allother Indian carriers.IndiGo has hardly advertised and indulged in brand buildingactivities. Its fast growth has been solely due to word of mouth andrepeat customers.They should indulge in brand building exercises.
  23. 23. S-O Strategies W-O StrategiesIntroduce continuous learning program Expand to International markets Create a shared services program with Pursue market growth opportunity competitorsDevelop marketing strategy to focus on Target competitor Pilots (Kingfisher; Air time-conscious business travelers India)Improve Operational efficiency and shift the productivity frontier outward to make it increasingly difficult for the competitor to copy S-T Strategies W-T Strategies Create a Pilot training program for CAT- Defer Delivery of New Aircraft III pilots Continue to successfully hedge fuel prices by importing Focus on Employee retentionDevelop promotional schemes to tempt consumers procure tickets from the Airline website directly to avoidcompetition from other low-fare airline
  24. 24. 2000 Airlines23000 Aircrafts3700 AirportsAvg Growth of 5%p.a. for past 30years 2015: Expected Growth from 2010 to 2015Total Revenue – US Revenues – 42.2% to reach US $ 714$598 Billion @ 0.7% Billionmargin of US $ 4 Passenger Volume – 28.4% to reach 3Billion Billion
  25. 25. Parameters Domestic Flights International FlightsLicense Fee Lower HigherProcedural Hassles Lower & easier Higher & costlierTraining Charges Lower HigherCrew Members Domestic Level World class and costlierGround Staff All of host countryDifferent types of All seats may be Economy Class At least Business Class required along withseat in low cost carrier EconomyIn flight meals Not mandatory in low cost In International Flights courtesy demands so airlinesTurn around time Easily manageable Difficult as mandatory fumigations, cleaning after meals and washroom upkeep required. Customised meals need to be arranged.Check-in time Lesser as majority are locals Documentation takes time as passengers are of various nationalitiesCustomer Loyalty Low HighLoyalty Programmes Solely Domestic Airlines do not Loyalty and FF Rewards make it difficult for have any such programmes passengers to switch choice of carriers. Especially after formation of alliancesMindset Domestic GlobalCulture Domestic Have to take care of cultures of people especially in respective flight sectorsReading Material Fewer, easily and quickly Care needs to be taken to provide materials in available various languages according to passenger mixLanguage spoken by National Language Care needs to be taken to ensure that at least onecrew members of the crew member can understand customer language.Customer Priority Cost Safety & ReliabilitySize of Aircraft Carriers are smaller but usually Larger size makes the flight more economical due operate at full capacity. to higher no. of seats Usually International flights are Airbus or Boeing
  26. 26. Dimensions of reliabilityAssurancesFacilities (In-flight and off-flight)EmployeesFlight PatternsCustomizationResponsivenessBrand Repute
  27. 27. Strengths Weaknesses Opportunities Threats•Domestic Success •Lack of Experience •47 countries with •High ATF prices•Business Model •Less Inbound but no •Increasing Labour•High Brand Differentiation outbound from Costs Awarness •Short lived India •Existing Players –•Cost Leadership innovations •Freight market Intense Rivalry•High Efficiency •No Established •Gaining share of •Global dynamics Alliances LCCs •Poaching•Innovation •Billing systems •Chartered services •Government•Age of Equipment•Tie Ups •Lack of Product policies Depth & Breadth •Scarcity of pilots•Continuous Improvements •In Flight Services & availability of•Image business class seats
  28. 28. S-O Strategies W-O Strategies Sell tickets in local currency to hedge against the Introduce learning program for new destinations currency fluctuationPursue market growth opportunities in Countries with Focus on M&A in international sky to take benefit of Inbound but no Outbound travel Scope Develop marketing strategy to focus on Indian Middle Loyalty & FF Rewards & Other Customer Retention class travelers by offering International holiday Programs packages in countries promoting high tourismContinue Focus on On Time Performance & Load factory maximization Raise Debt to grow Infrastructure & Balance capital portfolio Adopt Regional Strategies & Culture S-T Strategies W-T Strategies Create a Tie-up with other LCC’s players like Air Arabia, Focus on Employee retention Air Asia for the Indian customer base and exploit the Economies of Scope by providing more locations Offer Business Class Seats & In flight services whileContinue to successfully hedge fuel prices by importing focusing on cost optimization Leverage Economies of Scale

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