Report on the performance of Spice Jet Airline and the impact of slow down in Aviation industry in GDP of the country

1. ECONOMICS PROJECT
AVIATION INDUSTRY
SPICE JET
SubmittedTo- SubmittedBy-
Prof.Pooja Misra Premal Shrivastava
Dr.JagadishShettigar RollNo.- 19DM143

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ACKNOWLEDGEMENT
I would like to express my special thanks of gratitude to my economics professors “Jagadish
Shettigar ( Professor and area head Economics)” and “Pooja Misra( Associate Professor &
Chairman, Retail Management Program)” for their able guidance and support in completing
my project.
Date- 22-08-2019 Premal Shrivastava

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CONTENT
TOPICS PAGE NO.
INTRODUCTION 4
MARKET STRUCTURE 5,6
FACTORSAFFECTINGDEMANDS 7
FACTORSAFFECTINGSUPPLY 8
CHALLENGES IN AVIATION INDUSTRY 9,10
REFERENCES 11

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INTRODUCTION
Spice jet limited is the Indian low cost airline company which is head-quartered in Gurgaon,
India. Spice jet is the second largest airline company in India offering 14% market share. The
airline operates 313 daily flights to 58 destinations including 48 Indian and 8 international
destinations. The goal of the airline is to compete with the Indian Railway Air Condition
coaches with the aim of providing better facilities at the similar cost. In 2015, Spice jet
unveiled their logo and tagline as Red Hot Spicy and also the aircraft of Spice jet are named
after the name of the Indian spices and culture. In 2018, Spice jet has received the award of
India’s best domestic Airline award. The Spice jet staff is efficient, friendly and smart they
make the flight experience of the individual comfortable and timely. Spice jet put larger
emphasis in the safety of the customer and the traveller, the engineers and the workers
keep doing the maintenance of the aircraft in a timely manner. Spice jet is the airline
company which work on the traveller feedback regularly to improve the travelling
experience of the traveller.
As, Clearly seen from the revenue graph of the Spice jet that the revenue of the spice jet is
increasing every year.

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MARKET STRUCTURE OF SPICE JET
Spice jet works in the oligopoly market structure in which more than two firms compete to
share the market. In Oligopoly there is high entry and exit barrier same is the case with the
Aviation industry in which the Entry and the Exit barrier is high. As, We see to enter in to the
aviation industry there is a requirement of huge investment and the exit barrier is also high
as we have seen in the case of Jet Airways in which the company was in debt of 35000 Cr .
So, The exit from the industry is not that easy. When we talk about Spice jet the competitor
of Spice jet are Go-Air, Indigo, Vistara and etc. Spice jet is not the market leader in the
aviation industry they are targeting the middle-class and upper middle class segment of
India by providing them cheaper flights, Discounts, Larger discounts on the round trip and
etc. So, The cheaper flights became their point of difference to the other aviation
companies. As a challenger they have to keep working on the innovation and try to frontal
attack on leader by giving huge discounts during festivals, vacations and etc.
Market Leader in Domestic Aviation Industry – Indigo
Market Challengers in Domestic Aviation Industry – Spice Jet, Air India, Jet Airways

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Domestic Airline in July 2018
Passenger Load Factor shows the rise in the seat occupancy of the flight. As we see from the
Bar graph the data shows the seat occupancy in July 2018. It shows that the leader of the
aviation industry Indigo have 88.7% of the seat occupancy whereas the seat occupancy of
the challenger Spice Jet is more than that of the leader i.e 93.8% . This shows that
1> Excellent Marketing Strategy of the Spice jet – The idea of different marketing
scheme which relate to the middle class segment of the society such as discount on
one-way trip and the round-trip, Good return of investment such as flights are on
time, Good services provided, Price of the Air fare is sometimes even cheaper than
the third class AC of the railway so people prefer the flight which save lot of their
time.
2> More Flights on Weekend then that of the Week days – The number of flights on
weekend is more than that of the week days . So, Large number of people travelled
during that period of time.
3> Flights to Tier-2 Cities – The connectivity to the tier-2 city is more as more and more
companies are focusing on the tier-1 cities but Spice jet is catering the tier-2 cities
market as well.
4> Emotional Branding – Spice jet keep the name related to Indian emotion. So, This is
also one factor for increase in sales of flight tickets

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FACTORS AFFECTING DEMAND
1. Price of the Commodity- When there is rise in the price of the airfares the demand
of the Air-Tickets of the spice jet decreases but when there is fall in the price of the
air fares the demand of Air Ticket increases.
2. Income of the consumer- When there is increase in the income of the person then
there is increase in the purchase of air tickets of the Spice Jet but on the other hand,
If there is decrease in the income of the person then there is decrease in the
purchase of air tickets.
3. Price of Substitute Goods – Travelling can be done by number of ways. So when the
price of substitute way of travel such as railway, buses decreases then the people
who are traveling shorter distances switch to substitute mode of transportation. So,
Spice jet keep the prices competitive.
4. Tourism and Festivals- The demand of the Spice jet air ticket increases at the time of
festival and during the summer vacation time. The air ticket is also high as per the
demand during this time.
5. News- When there is some negative news regarding the plane crash and plane
hijack. The fear comes in to the mind of the people and they starts traveling lesser
due to this reason Spice jet introduced discount and sell ticket at lower price.
6. Consumer Preference – In India there are some places where people prefer traveling
by train and buses rather than taking flights. So, Spice jet do not operate in all these
regions such as tier 2 cities of India.
Demand Curve Price v/s Quantity

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FACTORS AFFECTING SUPPLY
1. Price of the input – The supply of any industry depends on the price of input. When the
price of input increases the profit margin decreases which in result increases the entry and
exit barrier of the industry. And the companies became less interested in investing that
sector. In the case of spice jet case the 40% expenditure goes in to the purchase of Air
Turbine Fuel excluding taxes which is imposed by Central and the state government. Excise
duty is 14% and the state government impose the 20%-30% sales tax.
2. Running Cost of the Airline – The running cost of spice jet includes the maintenance cost,
labour cost, technical department and the management. In the case of spice jet there is
requirement of good quality of employee in terms of education, background,
communication skills, Technical skill and etc. So, This increases the input cost of the spice
jet.
3. State of Technology – Technology plays a very important role in the supply of any
industry. If there is continuous innovation taking place in the input of that industry then the
probability of the lower price input is always there but in case of aviation industry the
innovation on inputs is not taking place at that rapid rate as compared to that of the other
industries . But recently from the article of the The Hindu dated 23 Feb 2019 confirmed that
the scientist of the Indian Institute of Petroleum, Dehradun successfully finished pilot test to
convert the cooking oil into the bio-Air turbine fuel. The flight of Spice jet take-off from the
Dehradun and landed to the Delhi.

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4. Government Policies- The government is making policies to increase the profit margin of
the aviation industry and this industry attracts more players by lowering the entry and the
exit barrier. They have taken initiatives in recent past such as Udaan Scheme, Nav-Nirmaan
Scheme and Digi- India scheme.
CHALLENGES IN AVIATION INDUSTRY
1. Fuel price – The Air Turbine fuel is very costly it has got 40% share in the total
expenditure in the aviation industry. The different airline companies has to keep their
air-fares competitive due to market competition and as a result the profit margin
decreases which raises the entry and the exit barrier as well. The aviation industry is
growing at rapid rate by 20% growth rate per year and having seventh largest aviation
industry in the World. So, The government has taken the Udaan initiative according to
which if flights takes the prescribed route they get rebate or subsidy in the tax rate of
the Air turbine fuel. Spice jet has enrolled itself in the udaan scheme as the number of
domestic is higher.
2. Congestion, Infrastructure development required in India-The infrastructure of Indian
airports is not up to mark when compared to other countries in every city we have
mostly one airport which create lot of congestion and inconvenience to the
international tourist due to this lots of tourist restrict themselves from traveling to
India. And as a result Spice jet is losing their International customers. Government have
started Nav Nirman yojana which works in the infrastructure development of the
airports. And also Digi-Yatra scheme is also started by the government to improve the
convenience of the people at check-in using the Face recognition technology. Once all
the details of the passenger gets stored in the central repository and after verification
during check-in at first flight. The person can check-in with the help of face recognition
while traveling the next time which improve the travel experience of passengers.
3. Huge investment but the yield is unpredictable – The investment on each and every
attribute of Spice jet is high they have to hire professionals at higher salary packages
and they cannot rise the air-fare due to high competition in the market. So, The Spice
jet future is always unpredictable due to huge investment and hope of getting good
amount of return.

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4. Value Proposition Issue – Spice jet is known for providing the cheapest flights and to
maintain this point of difference as compared to other players. They have to provide
discounts in every season which eaten up the larger profit margin of Spice jet.
5. Operation issue – Due to the uncertainty in weather the delay in flights of the Spice jet
create loss to the Spice jet, people and the good-will of the Spice jet.
Percentage Distribution of the Challenges for the Spice Jet

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References
1. https://economictimes.indiatimes.com/Spice jet-ltd/profitandlose/companyid-7876.cms-
EconomicsTimes
2. https://www.business-standard.com/company/Spice jet-3367/information/company-history
- BusinessStandard
3. https://www.Spice jet.com/CorporateOverview.aspx - Spice JetSite
4. https://www.skyscanner.co.in/news/6-best-airlines-in-india-according-to-skyscanner-users-
Skyscanner
5. https://www.financialexpress.com/infrastructure/airlines-aviation/dgca-data-domestic-air-
passenger-traffic-rises-21-percent-in-july/1286888/ - Financial Express
6. https://www.Spice jet.com–Official website

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