IndiGo Airline: Strategy Presentation

Presentation by: Suddhwasattwa Mukherjee

 Worked for Ernst & Young LLP for 8 years as a

management consultant professional in the Advisory
Services (2008 – 2016)

 Working with ITC Infotech in the

Business Consulting Group (2016 onwards)

 Associated to Indian Institute of Foreign Trade

(IIFT) and IIM-Lucknow through various
July 2016 programmes
Introduction to IndiGo Airline…Few key statistics
Air Costa Vistara
Air Asia Air Pegasus
0.9% 1.31%
1.72% 0.14%
GoAir
Introduction about IndiGo
8.55% Trujet

0.14%
 IndiGo, headquartered in Spice Jet
Gurgaon, India is the largest India Domestic 11.63% IndiGo
airline in terms of passengers Passenger 2015 – 36.69%
flown with market share of 36.69% Annual Market
as of February 2016. Jet Group
share by Airlines Air India
22.48%
 It was set up in early 2006 by 16.45%
Rahul Bhatia of InterGlobe
Enterprises and Rakesh Gangwal, IndiGo Air India Jet Group SpiceJet GoAir
a United States-based NRI.
Air Asia Air Costa Vistara Air Pegasus Trujet

 InterGlobe holds 51.12% stake in

On Time Performance in 4 Metro Cities (%)
IndiGo and 48% is held by Passenger Load Factor (%) Year: 2015
Year: 2015
Gangwal's company Caelum
Investments. 100 87
85.2 82.4 87.4 76.5 76.3 SpiceJet 49.6
80 80 79.2
 IndiGo began its operations on 4th Air India (Dom) 52.1
60 45.4
August 2006 with a service from Jet Group 63.7
40
New Delhi to Imphal via Guwahati.
20 Go Air 65.8
 The airline currently operates a 0 IndiGo 73.3
fleet of 109 planes and offers 679 IndiGo Air India Jet JetLite SpiceJet GoAir Air Air Asia Vistara
flights a day. Airways Costa 0 20 40 60 80

Case Study: IndiGo Airline Analysis and Presentation by Suddhwasattwa Mukherjee

Our understanding about IndiGo Airline…The Growth journey

2011 - 2012 2013 - 2014 2015 - 2016

IndiGo replaced the state run IndiGo was the second fastest growing In 2015, IndiGo placed an order of 250
2011:
flag carrier Air India as the top
Market share
17.3% low-cost carrier in Asia behind Airbus A320 Neo aircraft worth $27 billion,
third airline in India. Indonesian airline Lion Air. making
it the largest single order ever in Airbus
In 2011, IndiGo placed an Indonesian history.
order for 180 Airbus Fastest 2015:
2011: US$27
320 Neos aircraft in a deal Growing 250 Airbus
Billion
worth US$15 billion which 180 A-320 US$15 A-320 Neos
pushed up the percentage of Deal
Airbus Neos Billion Aircraft
Airbus aircraft in India to 73% Deal 2nd
Fastest
As of 2012, IndiGo was expanding rapidly and was the only profitable airline in
Growing
India. Largest single order
in Airbus history
Replaced Kingfisher as the 2nd largest airline in India in terms of market share. Took delivery of 9 Aircrafts in 2013
IndiGo strongly adheres to a low-cost model, buying only one type of aircraft and
keeping operational costs as low as possible along with an emphasis on In August 2013, the Center for Asia 37% IndiGo’s Market share in Feb
punctuality. Pacific Aviation ranked IndiGo among 2015
the 10 biggest Low-cost carriers in the
IndiGo added a new plane every six weeks and sometimes even world.
faster.
Largest 9.4% IndiGo’s Net Margin FY 2015
August 2012, IndiGo became the largest Within Top 10
2012: biggest LCC
airline in India in terms of market share
(27%) surpassing Jet Airway, 6 years after Market share 27% in the World IndiGo’s IPO opened in
INR 3200 Cr October 2015
operations commenced.

Case Study: IndiGo Airline Analysis and Presentation by Suddhwasattwa Mukherjee

Competitor Landscape Mapping…Indian civil aviation sector

Airlines

Parameter Jet Group

2015 Domestic
Maximum
Market share 22.48% 16.45% 11.63% 8.55% 1.31% 36.69% market share
(Passenger number)

No of years in
operation
24 70 11 11 1 10

Fleet Size 116 109 34 21 10 109

Destinations 68 84 41 22 17 40

Not making Maximum

Not making Not making US$ 1.5
Profit Profit
US$ 190
-
Profit Profit million
Profit
Tailwinds Air India
SpiceJet Wadia Group Tata Sons
Parent Company
InterGlobe million
Private Limited Limited Enterprises
Maximum flight
Daily flights operation with a
smaller fleet
300 488 306 140 87 679 size
Case Study: IndiGo Airline Analysis and Presentation by Suddhwasattwa Mukherjee
Porters ‘Five Forces’ in the Industry environment analysis for IndiGo Airline…Forces
shaping up the competitive environment of Indian civil aviation sector
High
High
Bargaining Power of Suppliers
 Aircraft and Engine manufacturers are both
concentrated Oligopolies Suppliers like
High
Dauphin,Dronier,Bell,ATR-42 do not meet
the requirement to serve low cost
commercial aircraft carriers – suppliers are
very few and they have good demand of
their products
 Airports are local monopolies with significant
power
 Airport services – Catering, Handling,
Cleaning are also concentrated in a small
number of firms, but low switching costs
 Powerful Labor Unions especially when
controlling operations at Network hubs
 Limited number of Fuel suppliers
Case Study: IndiGo Airline
 Low Switching Costs
 Limited Incumbency advantages
 Some Demand-side benefits of scale
 Easy access to Distribution channels
Threat of New  Easy entry of Foreign Carriers in the International Routes where
Entrants High
IndiGo operates -- Dubai, Bangkok, Muscat, Singapore, Kathmandu
 Govt. Regulation / Indian Civil Aviation Policy - key entry barrier
 Set-up cost, fuel cost and resource availability -key barriers to entry Bargaining Power of
 Regional Carriers start-ups Buyers
 Buyers are highly fragmented –
 Very little scope for differentiation between competitors’ products lowering their power
and services – closest competitors are Spice Jet, Go Air  Low Switching cost for most of
Intra-Industry
 Mature Industry with very little growth the customers as multiple
Rivalry  No brand loyalty demonstrated by customers alternatives are available
 Significant exit barriers
 Air travel is perceived
as a standardized product
 Price sensitive as travel is a
Medium and  The number of customers who can afford air travel are meaningful share of
increasing day by day specially in the emerging markets where discretionary spending
Rising IndiGo is operating
 Substitutes are readily available
 Technology for Web / Video conferencing is improving – reducing
in the form of railway and
Availabilit business travels
roadway transport in cases
y of  Railways is an alternative, but for shorter routes – not a powerful
substitute in longer routes for the time consumption factor where time is not a very critical
Substitut consideration
es across India where IndiGo operates
 Direct substitutes are low cost airlines like SpiceJet, Go Air – as
buyer’s switching cost is very low
Analysis and Presentation by Suddhwasattwa Mukherjee
External environment analysis for IndiGo Airline using the P.E.S.T Framework

Political
 Open Sky Policy / Deregulation (+)
 Low Entry barriers (+)
 FDI Limits (+)
 International Travel Restricts (-)
Technological Economic
 Modernized Airports (+)  Growing middle class income (+)
 Greenfield Airports (+)  Consistent GDP Growth (+)
 Better handling of  Hike in average income (+)
Aircrafts, passengers (+)  Growth in tourism (+)
 Video Conferencing (-)  Rising ATF Price (-)
Socio-cultural
 Growing Middle class (+)
 Domestic Leisure travel (+)
 (+)
Foreign tourists (+) Enabling Factors
 Status symbol (+)
 Security issues and terrorism (-) Disabling Factors

Case Study: IndiGo Airline Analysis and Presentation by Suddhwasattwa Mukherjee

Internal Environment analysis for IndiGo Airline using S.W.O.T Framework

 Brand awareness
 Less product differentiation
 Cost leadership – High profitability and
 Not present on too many routes
revenue
 International absence (only select
 High market share and growth rate
International routes at this point – Dubai,
 Hold on the domestic market
Bangkok, Muscat, Singapore, Kathmandu)
 Advertising and marketing strategies
 Investment in Research and Development
 Experienced Business Units and skilled
workforce Strength Weakness

 International market
Opportunities Threat
 New products and services  Changing Govt. Policies and rising labor
 Middle class taking to the skies costs
 Chartered flight services  Plenty of new Low cost carriers to compete
 Cargo services with
 Increasing flight frequency  Barriers to exit
 Growth rate and profitability

Case Study: IndiGo Airline Analysis and Presentation by Suddhwasattwa Mukherjee

TOWS Analysis: Strategic analysis used to study the environment for IndiGo and its interior

2 3
SO
 Increase domestic
destinations
 Upgrade to Long-haul
aircrafts as per demand
 Offering affordable
international holiday
packages to the middle
class travelers
WO
 Going International
 Expand to freight /
cargo services
 Diversify to chartered
flight services
 Loyalty, rewards and
other customer retention
programs
4
ST WT
 Effective incentive  Create a tie-up with
programs to prevent other LCC players like
talent drain Air Asia for the Indian
 Sign anti-poaching customer base to
agreement with provide last mile
competitors connectivity
 Continue to  Offer business class
successfully hedge fuel seats, continue
prices by importing innovation of value added
services while focusing
on cost optimization

Case Study: IndiGo Airline Analysis and Presentation by Suddhwasattwa Mukherjee

Internal analysis for IndiGo Airline using VRIO Framework

Resources and
Value Rarity Imitability Organization
competencies
Low Fares Yes Yes No Yes
VRIO analysis
Single type of Aircraft Yes Yes Yes Yes
for IndiGo
Turnaround Time Yes No Yes Yes

Brand Name Yes Yes Yes Yes

1 2 3 4
Value Rarity Imitability Organization

 IndiGo has created value
and increased its market
share by offering the lowest
fares. The way they do it is
through having a single
type of Aircraft which
reduces the overall
maintenance cost.
 This arrangement also
reduces the fuel cost
through fuel hedging
 IndiGo has the highest
market share in the Indian
domestic Airline industry
and it owes everything to
the low fare tickets it offers
to the customers. The low
average fleet age and
single type of aircraft is a
rarity in the Indian Airline
Industry.
 Even though IndiGo has
created much value in the
market and amongst its
customers, but many of its
strategies like less
turnaround time and using
single type of Aircraft are
imitable. Thus, in the long
run these differentiator will
not be very effective for
indiGo
 In the last few years,
IndiGo has become the
brand name in the Indian
Airline Industry. It has
hardly been ten years since
its inception and it has
created a brand value
through unique value
proposition and strategic
initiatives.

Case Study: IndiGo Airline Analysis and Presentation by Suddhwasattwa Mukherjee

IndiGo’s strategies at various levels

1
Operations Strategy

Functional Level Marketing Strategy

Strategy

Financial Strategy

Flexible options for purchase of

Range and Diversity food and beverages
2 3
No Refund
Corporate Growth
Lean Distribution System
Professional Airline Corporate Level Business Level
management Strategy Strategy Online Check-in
Strengthening
organizational structure  InternetSales
Well thought out  Sales Office
salary structure  Travel Agents

Case Study: IndiGo Airline Analysis and Presentation by Suddhwasattwa Mukherjee

Functional level strategies…IndiGo’s Strategy in Operations
 IndiGo’s whole fleet consists of A-320-232
1 aircraft while Air India, Jet Airways and Spice
Jet use 10, 9 and 3 different makes of
aircraft respectively.
Single type of
Aircraft  This result 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 up gradation costs.
2  IndiGo’s is having only Economy class; they do
not have to spend time, money and crew on
privilege passengers.
Single Class -
Economy
 They also don't need to maintain expensive
lounges at airports further reducing costs.
 IndiGo has an average fleet age of less than 4
years. A younger fleet means less maintenance
3 costs. IndiGo plans to maintain a lower fleet
age as all its aircraft are leased for a period of
Low average 5-6 years.
Fleet age
 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.)
Case Study: IndiGo Airline
 Domestic fuel taxes can be as high as 30 per cent along with an 8.2
4 per cent excise duty. As a result, fuel for Indian airlines accounts
for about 45% - 50% of total operating costs, compared to the
global average of 30%.
Fuel
 IndiGo’s aircraft 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.
 IndiGo operates over a lesser number of destinations than its
5 competitors but with a higher frequency - with a fleet of 78 planes for
36 destinations while Spice Jet flies to 46 destinations with 58 planes.
The network maps show that all IndiGo's destinations are connected to
Effective at least two cities while most are connected to 3 or more destinations,
Route whereas this is not the case with Jet Airways. This means Indigo can
Planning keep its aircraft in the air for a longer period of time and save up on
airport charges.
 This also means that customers don't have to look for connecting
flights with other competing operators.
6  IndiGo has a Power by the Hour contract with International Aero
Engines (IAE), which provides the engines that put the onus of
Tightly framed performance delivery on the manufacturer. IndiGo has similar
Maintenance agreements with Airbus, as well as with the vendors for other critical
Contracts: 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.
Analysis and Presentation by Suddhwasattwa Mukherjee
Functional level strategies…IndiGo’s Strategy in Marketing and Finance
Marketing
1 1
Advertisement  Little advertising spend.
2
 High reliance on word of mouth marketing in its
No Frills early days by establishing a reputation of being a
‘No frills’ airline which is always clean and on time.
 IndiGo advertised heavily when it started
international operations and also when Kingfisher
3 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
Strategic good times‘. This move was criticized but it worked
Marketing for IndiGo.
 The result of these operational and marketing
aspects is visible in IndiGo which has a market
share of 37% and the highest passenger load
factor of close to 90% compared to 77% of
JetLite and 81% of Spice Jet. This means better
revenue for IndiGo compared to its competitors.
Case Study: IndiGo Airline
Finance
Debt  Indigo has gone on record to say that the company
has practically no debt.
 Leaseback is a financial transaction, where one sells
an asset and leases it back for the long- term;
therefore, one continues to be able to use the asset
2 but no longer owns it. The transaction is generally
done for fixed assets, notably real estate, as well as
for durable and capital goods such as airplanes and
Sale and trains. IndiGo has been able to better leverage this by
Leaseback: 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 A-320s in 2011 and
250 A-320 Neos in 2015
Analysis and Presentation by Suddhwasattwa Mukherjee
Corporate level strategies

Range and  IndiGo operates 78 planes for 36 destinations - Higher frequency

Diversity

 With innovative ideas like “check-in counters” for passengers with only cabin baggage so that instead of
waiting in lines, they can check-in with an IndiGo official with a handheld device, IndiGo is creating its own
blue ocean.
Corporate Growth
 Engagement with various travel web-portals and collaboration with hotels has increased its social capital. E.g.
IndiGo gives 10% discount on the next travel booking if customers had stayed in any of the tie-up hotels.

Professional
 IndiGo paid much attention to its corporate level strategies right since its inception. Its first CEO, Bruce
Airline
Ashby, landed in India 18 months before its planned launch.
management IndiGo Network

Strengthening
 While most domestic airlines are cutting up their staff strength, IndiGo is speeding up its recruitment process
for more pilots, cabin attendants, and other supporting staff.
organizational
structure

 Very Low compared to the Industry average - The usual scale for the industry is double the amounts
Well thought out
here. Contractual jobs, no commitment on the company's half whatsoever but requiring back breaking
Salary structure efforts in order to renew your contract every two years to keep the job..
“check-in counters” - handheld device

Case Study: IndiGo Airline Analysis and Presentation by Suddhwasattwa Mukherjee

Business level strategies
‘No Frills’
 Some of IndiGo’s passengers may prefer not to consume food & beverages when on board. There are those who
Flexible options for prefer to rest throughout a flight or those who prefer having their meals before flying off. Hence IndiGo comes up
with an arrangement where the guests have the flexibility to purchase food or beverages based on their requirement.
purchase of food
and beverages  Guests who are pre-decided regarding their meal selection, can purchase food & drinks at an affordable price from
IndiGo’s website before the flight, of from the cabin crew during the flight.

 Airlines waste a lot of money, time and resources due to refunds and rescheduling when guests do not show up for
No Refund a flight. Whether or not a guest shows up, the cost of flight to the airline is the same. LCCs are strict when it
comes to no show guests and do not offer refunds for missed flights. IndiGo follows the same approach.

 Distribution costs are something that FSCs most often ignore. Very often, FSCs rely on travel agents and their sales
offices. Furthermore, FSCs tend to complicate their distribution channels by integrating their systems with multiple
Lean Distribution Global Distribution Systems, which are very costly. LCC will keep their distribution channel as simple as possible
System and will cover the whole spectrum of the clientele profile. And at the same time, IndiGo has an established system to
sell their tickets to the most remote and technology deprived locations, such as in Myanmar.

 Guests are highly encouraged to check-in online so they do not have to waste time lining up at the check-in
Online check-in counters at the airport. This helps IndiGo to improve efficiency and reduce congestion in the airport.

 The bulk of sales (85%) are done via the airline's website, whereby the fares are paid using credit cards, debit cards
 Internet Sales or via online banking. This is the most cost effective distribution channel.
 Sales Office  IndiGo establishes a sales office if they are confident the sales derived from the centre will be worth it.
 Travel Agents  Does not use travel agents and World wide reservation system – allows IndiGo to save cost, reduce ticket price and
get more number of flyers

Case Study: IndiGo Airline Analysis and Presentation by Suddhwasattwa Mukherjee

Outcome of IndiGo’s strategy analysis: Critical strategic factors driving the success of the Airline
1
IndiGo ensured that its average fleet
age remains 4 years till 2032
 Well thought-out fleet strategy made 10 years
back, and not something done a couple of
months ago.
 The last plane of the three bulk orders of 530
aircraft that IndiGo placed will come in 2026 —
100 Airbus A-320 in 2005, 180 A-320 Neos in
2011 and 250 A-320 Neos in 2015.
 IndiGo’s bulk buying helped negotiate better
rates.
 Gained right at the beginning — this is netted
against IndiGo’s rentals and brings the cost
down.
2 3 4 5
Buy, sell and lease back’ Fuel efficient planes leading Strategic planning Strategic approach to
strategy to lower operational cost for Neo based increase its footprint
fleet
 Every month a plane goes out of  Because of the 6 year  With orders in place, IndiGo
 Once all airplanes are delivered, lease back plan, with the is planning to increase its
IndiGo’s fleet and a new aircraft
IndiGo will not have a fleet of 530 next two-and-half years presence in the number of
joins, thus reducing the average
planes — this is due to the ‘buy, one-third of IndiGo’s cities it flies to - adding two
fleet age; the cost of maintenance
sell and lease back’ strategy. At fleet will be Neos, and in to three cities to its portfolio
is also lower.
peak they will have 330 planes. the next 6 years it will every year. In the next
 In 2011, IndiGo was the first
Once the order is placed the planes have an all Neo fleet. eight and half years it
customer for Airbus to order the
are sold to lessors at market price. plans to have presence in
new range of fuel efficient A-
The planes are then leased back  There is a straightaway 56 airports compared to
320 Neo planes. Neos help in
for the next six years — which positive impact of 7% on 33, now.
saving 10-15% of the overall
means for the first six years IndiGo the company’s bottom  Regional flying is not on the
fuel cost. Fuel makes up for
receives a plane every month. line because of the radar, and neither are
50% of a carrier’s cost.
Neos. smaller planes.

100
Airbus 2005 7%
A-320 10-15% 50% 33 56
180
A-320 Bottom line Growth Plans – number
2011
Neos At peak, 330 Planes improvement of Airports operated
Fuel due to Neo
250 Fuel cost saving contributes based Fleet 3 Cities adding plan
A-320 2015 for IndiGo planes 50% of
every year
Neos Carriers cost

Analysis and Presentation by Suddhwasattwa Mukherjee

Key strategies and recommendation for IndiGo Airline…Relook at the current segmentation process

Existing segments (identified in Existing Segmentation Proposed Segmentation

case) not mutually exclusive
collectively exhaustive  Corporate
 SME
 Leisure
Need for segmenting based on
 VFR
benefits sought-based on in-
 Student
depth literature review
Purpose-based segmentation
 Consumer insights based on  Reliability
interviews carried out by  Comfort
Agencies at various points  Price
 Price-quality
 Literature review
 Service flexibility
Benefits-based segmentation

Segment Description Favorability to Indigo

“I need efficiency and
punctuality”
“I want comfort”
“I am hard-pressed on price”
“I am price-conscious and
quality seeking”
“I want flexibility across all
offerings”
Outcome
Target Segments
 Seek reliability, sensitive to delays, switch brands easily
 Low price sensitivity High
 Reliability
 Seek benefits from FFP, catering and flexibility  Price
 Price is most irrelevant Low  Price-quality
 Personal benefits of minor importance
 High price sensitivity Medium
Next step
 Seek mix of price and quality
 Low tolerance to delays, ready to pay premium for punctuality High
Analysing current
positioning w.r.t. new
 High decision autonomy
 Hard to address due to multiple benefits sought Low segmentation process

Case Study: IndiGo Airline Analysis and Presentation by Suddhwasattwa Mukherjee

Key strategies and recommendation for IndiGo Airline…Positioning strategy - Aiming that spot in
consumer’s mind
Promotion Strategy
Product Strategy o Observation

R Recommendations
Aim
Planning Phase
 Improve Talkability
o Value-seeking Segment prefers booking hotels/cabs with flight tickets  Customer Involvement

R Cross-sell ibis-InterGlobe Hotels (Group synergy)

Pre-flight Waiting Phase Channel: Social Media

Driver for Success : Volume of visitors
Most travelers buy beverages & light snacks at the airport-
o - Price is a major deterrent

R Tie-up with shops for a discount for IndiGo customers

Deals Contests

Post-travel Phase  Deals for booking well CONTESTS like

before the travel date
o Booking cabs after flight adds to hassle  Last minute deals through
social media for increased
Pre-paid cab booking at destination available before even boarding the flight interaction
R - cuts down the hassle
“My IndiGoStory” depicting
and sharing awesome travel
experiences

Case Study: IndiGo Airline Analysis and Presentation by Suddhwasattwa Mukherjee

Key strategies and recommendation for IndiGo Airline…Identifying Geographies for Growth

Macro-economic trends Future plans Industry trends LCC market Proposed airports
(Growth, industry, aviation (Geographic (Competitive (Players, competitor (Growth sectors & their
Region sector, ease of doing expansion, aircraft landscape, moves) distances upon Verdict
business, ATF prices deliveries) costs, new entering)
sectors)
Addis Ababa, Nairobi,
Africa
Cairo, Morocco

Europe Istanbul, Brussels/Paris Not Now

Middle-East Dubai, Doha, Abu Dhabi

North America Atlanta, New York Not Now

Rio de Janeiro, Sao

Latin America
Paulo, Venezuela
Not Now

South Asia Colombo, Dhaka

Hong Kong, Guangzhou,

North Asia
Shanghai
Bangkok, Singapore,
South-East Asia
Jakarta

Favorability for IndiGo’s next phase of growth

Case Study: IndiGo Airline Analysis and Presentation by Suddhwasattwa Mukherjee
Thank You

Presentation by: Suddhwasattwa Mukherjee

Email: mukherjee_suddhwa@yahoo.co.in

Phone: +91 9830135111 (M)