It is up to the Manager how he would make the Market work for his Business and not the other

way round

Case Study: Indigo Airlines

Aviation Industry Market Structure

Oligopoly Market

A few firms selling similar products / services. Each firm produces branded products / services. Few number of firms contribute to majority of the market share. Significant entry barriers into the market in the long run which allows firms to make supernormal profits. Interdependence between competing firms. Businesses have to take into account likely reactions of rivals to any change in price and output.

Milestones
Year < 1953 1953 1986 1994 1995 1997 2001 2003 2005 2006 2007 2010 2011 2012 Milestones Nine Airlines existed including Indian Airlines & Air India Nationalization of all private airlines through Air Corporations Act; Private players permitted to operate as air taxi operators Air Corporation act repealed; Private players can operate schedule services Jet, Sahara, Modiluft, Damania, East West granted scheduled carrier status 4 out of 6 operators shut down; Jet & Sahara continue Aviation Turbine Fuel (ATF) prices decontrolled Air Deccan starts operations as Indias first LCC Kingfisher, SpiceJet, Go Air, Paramount start operations Indigo started operations Industry consolidates; Jet acquired Sahara; Kingfisher acquired Air Deccan SpiceJet starts international operations Indigo starts international operations, Kingfisher exits LCC segment Government allows direct ATF imports, FDI proposal for allowing foreign carriers to pick up to 49% stake under consideration

Aviation Industry Present Scenario

The Indian Aviation Industry has been going through a turbulent phase over the past several years facing multiple headwinds high oil prices and limited pricing power contributed by industry wide over capacity and periods of subdued demand growth. Near term the operators are facing challenges related to high debt burden & liquidity constraints.

Impact
Beginning of 2008-09, the sector was impacted by sharp rise in crude oil prices, it was the decline in passenger traffic growth which led to severe underperformance during 2008-09 to 2009-10. In past, the industry also got hit because of H1N1 & SAARS (GPR).

Recovery
The operating environment improved for a brief period in 2010-11 on back of recovery in passenger traffic, industry-wide capacity discipline and relatively stable fuel prices.

Aviation Industry Present Scenario

Unfavorable foreign exchange environment
Elevated fuel prices over the last 3 quarters coupled with intense competition & unfavorable foreign exchange environment has again deteriorated the financial performance of airlines.

Measures initiated recently by the Government

A) Proposal to allow foreign carriers to make strategic investments (up to 49% stake). B) Proposal to allow airlines to directly import ATF. C) Lifting the freeze on international expansions of private airlines. D) Financial assistance to the national carrier.

Reasons for High Operational Cost

Despite reforms, the domestic aviation sector continues to operate under high cost environment due to

Economic Factors
The aviation industry is susceptible to external economic factors because it affects and depends on a various industries and also it involves operating cross borders.

Price Elasticity of Supply and Demand

Depends on Competition Rise in Fuel Prices Economic Condition Rate of Interest Disposable Income Availability of Substitutes

Monetary and Fiscal Policies

Taxes imposed by the Government Charges made by Government bodies Air Traffic Control Charges Track Access Charges Infrastructural investment within the sector

Economic Factors
Positive and Negative Externalities
Trade improvement Business efficiency Increasing number and quality of growth sectors Boosts investments Improves Economy
Environmental Emission Noise Regulations Terrorism Technological Changes

Wage Inequality
Wage Dispersion Job Uncertainty Inter-firm Disparities

Current Market Share

Domestic Airlines
5.40 17.70 17.60 7.30 6.80 21.40

23.80

Jet Airways Air India IndiGo GoAir SpiceJet Kingfisher JetLite

About Indigo
Fastest growing private domestic low-cost airline in India Based on the low cost - no frills model and only airline in India making profit Operates to 32 destinations in India and abroad with 351 flights each day Largest share in India's domestic air travel market (23.8%) as of April 2012 Grown faster than any other low cost carrier in the world Set up in early 2006 by Rakesh Gangwal and Rahul Bhatia, of InterGlobe Enterprises. InterGlobe holds 51.12% stake in IndiGo and 48% is held by Caelum Investments, a Virginia, US based firm, run by Rakesh Gangwal

Key Facts
Founded 2006 Commenced Operation - Aug 4, 2006

Hubs Indira Gandhi International Airport (Delhi) Secondary Hubs Chhatrapati Shivaji International Airport (Mumbai) Netaji Subhash Chandra Bose International Airport (Kolkata) Focus Cities

Delhi Bengaluru Pune

Mumbai Chennai Hyderabad Ahmedabad

Kolkata Cochin Trivandrum

Key Facts
Frequent Flyer Program Indigo Corporate Program Fleet Size 56 (+224 Orders) Destinations: 32 Head Quarters Gurgaon, Haryana - India

Company Slogan Go Indigo Key People Rahul Bhatia (MD) and Aditya Ghosh (President) Profit ` 650 Crores (US$ 129.8 Million) (Data 2011) Website www.goindigo.in

Competitors

Indigo Focus
Indigo focuses on doing One thing, and doing it well. That's why it is known for power of One
Type of Airplane - Brand-new Airbus A320s

Type of Fare - Low

Type of Customer Service - Professional Type of Route - Servicing destinations within India

Way to deal with Delays and Cancellations - Honestly

Indigo Advantage
Believes in Minimizing the cost, On time, Hassle free air travel Incorporates the best hardware, software, interface design and people from around the world, Offers lowest fares by staying focused, without cutting corners or compromising on things

Has processes and safe & simple rules that cut wastes and hassles, Ensures smooth, seamless, precise, gimmick-free customer experience at fares that are always affordable

Indigo Strategy
1. Single Model of Aircraft 2. Operate on Secondary Airport 3. Hub & Spoke Model

1 8 2

4. Fewer Employees per air craft

5. E-Ticketing 6. Single Class Configuration 7. No In-flight Entertainment Systems 8. Ancillary Revenues

How do they do it
IndiGo placed order of 100 Airbus A320-200 aircraft during June 2005 in plans to commence operations in mid 2006. The airline acquired parking lots at both Mumbai and Delhi airports. By the time they announced the first flight, they had scheduled their first 20 aircraft. Early 2012, IndiGo had taken the delivery of its 50th aircraft in less than 6 years. IndiGo is known to have placed the largest order in commercial aviation history during 2011, when Airbus won the US$ 15 billion deal for 180 aircraft. This deal pushed up the percentage of Airbus aircraft in India to 73%. As of April 2012, IndiGo was expanding rapidly and became the largest airline in India in terms of market share.

How do they do it
IndiGo's strong adherence to the Low cost model, Buying only one type of plane, Keeping operational costs as low as possible, Heavy emphasis on punctuality are some of the reasons for its success even when the airline industry in India is currently going through a bad patch. Focuses on adding a new plane every six weeks and sometimes even faster. Only airline which operates on a hub-and-spoke model. The airline operates through one central hub and all its aircraft flies on spokes between destinations and the hub, thereby improving its overall capacity. The airline deployed 112% capacity (highest in the industry) on Category III routes, which mainly comprise of smaller cities.

How do they do it
Being no-frills as an added advantage for the airline, it takes lesser turn-around time then full service carriers which cater food on-board.

Highest on-time performance with no record of either pilot strike or flight cancellations, hence it commands strong passenger loyalty.

Aircraft operates with a minimum set of optional equipment, reducing costs of acquisition & maintenance, thereby keeping the weight of the aircraft lower and thus saving fuel.

Indigo utilizes its aircraft for 16 hours in a day which is considered the highest in the industry, hence can ferry more passengers (Avg passenger loads have been around 90% in the past one year.)

Current Positioning
Cabin Occupancy
84.00 82.00 80.00 78.00 76.00 74.00 72.00 73.60 73.70 70.00 68.00

83.00 82.00
88.00 86.00

On Time Performance

77.10

74.90

76.40

84.00
82.00 80.00 81.20 78.00 76.00 80.70 79.70 86.80 86.40 86.50

Cabin Occupancy %

On Time Performance : April 2012

Current Positioning
Seat / Load Factor (%)
85.00 82.00 80.20 80.00 76.50 75.00 73.00 70.50 70.00 69.50 68.90 77.00 75.80 74.10 77.30 76.80 IndiGo Kingfisher Air India Kingfisher Jet Airways JetLite SpiceJet GoAir 0.6 0.5 0.4 0.1 3.3 80.80 80.00

Cancellation Rate (%)

5.2

GoAir
SpiceJet Jet Airways JetLite Air India

65.00

60.00

Mar-12

Apr-12
IndiGo 0

0.1
1 2 3 4 5 6

Awards and Achievements

2007 - Best LCC by the Airline Passengers Association of India. 2008 - Best LCC at the Galileo Express Travel Awards. 2009 - CNBC Awaaz's Travel Award for best low cost airline. 2009 - Safety Excellence Award by Rajiv Gandhi International Airport. 2010 Most Admired Travel Product of the Year 2009 by SATTE. 2010 Best Domestic LCC Airline by Travel Agents Association of India (TAAI). 2010 Safety Excellence Award by BIAL . 2011 Skytrax Central Asia's best low-cost airline award.