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Indigo airlines case study
This case study analyzes the strategy and success of IndiGo, India's largest domestic airline by market share. Some key points: 1) IndiGo has grown rapidly since its founding in 2006 to become India's fastest growing and most profitable domestic airline, overtaking competitors through its low-cost business model. 2) IndiGo focuses on affordable fares, on-time performance, and hassle-free service to attract customers. This strategy has helped it gain a 21.9% domestic market share. 3) While facing challenges like high fuel costs and competition, IndiGo has opportunities to expand into new markets like freight and international routes. Its continued growth relies on maintaining its low
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Indigo airlines case study
- 1. Case Study inInternational Business Strategy Submitted by – BKC, Mumbai Anurag Nagaria Anil Agarwal Joshil A. K. Kedar Marathe Nilesh Mashru Tanmay Shah Waris Imam
- 2. India’s fastest growingDomestic Airlines Expected to take the top spot by 2015 as per The Centre for Asia Pacific Aviation (CAPA) 21% of the domestic market share, behind the combined low-cost and premium operations of Jet Airways India’s best On-time performance & least flight cancellations Highest load factor of 89.40% IndiGo going International
- 3. 60 Million Passengers Served – 90 Million Domestic Passengers/ 20 Million International Passengers 45 Million Tonnes of cargo handled Operations with 920 Airlines, @ 4200 Airports, with 27000 Aircrafts Inbound Air traffic from 87 Foreign countries Outbound Air traffic to 40 countries International Passengers growing at CAGR of 14%
- 4. Rising income levelsand Attraction of foreign shores: profile: demographic profile Foreign Equity Allowed: Domestic Airlines entitled to Highest % of Indian 49% 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. 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 power gaining 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 buyers and 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. Threat of New Entrants Availability Bargaining of Substitutes Indian Power of Suppliers Aviation Industry Bargaining Competitive Power of Rivalry Buyers
- 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. 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. Emergence of theGreat Indian middle class willing to spend money for swifter travel For the Individual on the Go,who values time and on- timliness Budget travel is not cheap travel, Quality of Service Mission Statement : To be the best Airline in India by providing the following values to the customer: - Affordable Fares - Ontime performance - Hasslefree Service
- 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. Fastest Growing DomesticAirline 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 airlines which has been eating away market share from its competitors”
- 12. IndiGo has wonthe following awards for its excellent service across the Indian airspace- Best LCC by the Airline Passengers Association of India (2007) Best LCC at the Galileo Express Travel Awards (2008) CNBC Awaaz's 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 Asia's best low-cost airline award (2011)
- 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. Limited No Connections No Meals Passenger with other Service airlines IndiGo the 16 min No-Frills Airline gate Frequent & Turnaround Point to Reliable Point routes Departures 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. People for Cargo Services Buisness travel People for Business travel Leisure Charter Leisure travel/Holiday Airways travel/Holiday
- 16. Costly to Easy to Resources 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. One type ofairplane - brand-new Airbus A320s One type of fare - low One type of customer service - professional One type of route - serving destinations within India One way to deal with delays and cancellations – honestly
- 18. Be visible –go all out to project yourself as the Future Market Leader Go Local – Connect with the Middle class Focus on your Core Competencies and market them Aim to compete with Railways in the long run Synergies in offering value added services – Holiday packages/ Visa Services
- 19. Market Penetration & Differentiation More than 15 Within 14 days of With in 7 days of Low Cost And High days prior to Travel travel Quality of Service travel •The Base fare •The base fare Price to be differentiated •With other could upto reach could reach upto with respect to days fixed, Base upto 1500s 4500 before the travel. fare would vary High seating density and 101-501 load factor. No frills such as ‘free’ food/drinks or lounges Targeting segments locally based on seasons and festivals Recently launched EMI options for consumers thereby expanding the potential customer base
- 20. Communication Advertisement Objectives Strategy On-time performance Airport Hoardings Affordable fares Social Media Hassle free Collaboration with passenger Mutliplexes experience. Magazines Sponsoring Events Collaboration wish banks/ credit card cos./ hotels/ websites Use of Regional Languages
- 22. Constant improvement inoperational efficiency is necessary to achieve superior profitability, however it is not usually sufficient Companies can compete successfully based on basis of Operational effectiveness, however staying ahead of rivals gets harder day-by- day The most obvious reason is rapid diffusion of best practices Competitors can quickly imitate with the help of outside consultants or hiring managers from the leader Management techniques New technologies Input improvements Superior 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”
- 23. IndiGo has thepotential 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 surely will be one of the big players in the low-cost space globally with its expected fleet size of about 100 planes by 2016. At the moment, little is known about IndiGo's financial health because it is not listed on the stock exchanges and, therefore, does not have to put its profit and loss statement in the public domain every quarter, though it is certain the company is in the red like all other Indian carriers. IndiGo has hardly advertised and indulged in brand building activities. Its fast growth has been solely due to word of mouth and repeat customers. They should indulge in brand building exercises.
- 24. S-O Strategies W-O Strategies Introduce continuous learning program Expand to International markets Create a shared services program with Pursue market growth opportunity competitors Develop 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 retention Develop promotional schemes to tempt consumers procure tickets from the Airline website directly to avoid competition from other low-fare airline
- 25. 2000 Airlines 23000 Aircrafts 3700Airports Avg Growth of 5% p.a. for past 30 years 2015: Expected Growth from 2010 to 2015 Total Revenue – US Revenues – 42.2% to reach US $ 714 $598 Billion @ 0.7% Billion margin of US $ 4 Passenger Volume – 28.4% to reach 3 Billion Billion
- 26. Parameters Domestic Flights International Flights License Fee Lower Higher Procedural Hassles Lower & easier Higher & costlier Training Charges Lower Higher Crew Members Domestic Level World class and costlier Ground Staff All of host country Different types of All seats may be Economy Class At least Business Class required along with seat in low cost carrier Economy In flight meals Not mandatory in low cost In International Flights courtesy demands so airlines Turn 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 nationalities Customer Loyalty Low High Loyalty 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 alliances Mindset Domestic Global Culture Domestic Have to take care of cultures of people especially in respective flight sectors Reading Material Fewer, easily and quickly Care needs to be taken to provide materials in available various languages according to passenger mix Language spoken by National Language Care needs to be taken to ensure that at least one crew members of the crew member can understand customer language. Customer Priority Cost Safety & Reliability Size 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
- 27. Dimensions of reliability Assurances Facilities(In-flight and off-flight) Employees Flight Patterns Customization Responsiveness Brand Repute
- 28. 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
- 29. S-O Strategies W-O Strategies Sell tickets in local currency to hedge against the Introduce learning program for new destinations currency fluctuation Pursue 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 tourism Continue 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 while Continue to successfully hedge fuel prices by importing focusing on cost optimization Leverage Economies of Scale