Strategic

Management
Project
IndiGo
Since its Inception approximately ten years ago, IndiGo has created a
brand name for itself through different strategy practices which are rarely
seen in the Indian Airline Industry. It is currently the market leader in this
sector and there are no close competitors to it.

Prepared by:

Aakriti Gupta (002)

Ankita Sood (009)

Deepti Verma (016)

Lay Thaker (030)

Pramey Zode (038)

TABLE OF CONTENTS

Sr. no

1 About the company

2 About the Industry

3 External Analysis (PESTEL & Porters five forces)

4 Internal Analysis (SWOT & VRIO)

5 Strategies at Various levels (Corporate/Business/Functional)

6 Strategic Models

7 Recommendations

8 Conclusion
1. ABOUT THE COMPANY:
IndiGo, headquartered in Gurgaon, India is the largest airline in terms of passengers flown
with market share of 36.5% as of September 2015. It was set up in early 2006 by Rahul
Bhatia of InterGlobe Enterprises and Rakesh Gangwal, a United States-based NRI.
InterGlobe holds 51.12% stake in IndiGo and 48% is held by Gangwal's company Caelum
Investments. IndiGo began its operations on 4th August 2006 with a service from New Delhi
to Imphal via Guwahati. The airline currently operates a fleet of 97 planes and offers 648
flights a day.

1.1 Timeline:
2011-12: IndiGo replaced the state run flag carrier Air India as the top third airline in India. It
already had 17.3% of the market share. By early 2012, IndiGo had taken the delivery of its
50th aircraft in less than six years. In 2011, IndiGo placed an order for 180 aircraft Airbus
320 aircraft in a deal worth US$15 billion which pushed up the percentage of Airbus aircraft
in India to 73%

As of 2012, IndiGo was expanding rapidly and was the only profitable airline in India. It
replaced Kingfisher as the second largest airline in India in terms of market share. 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 punctuality. IndiGo added a
new plane every six weeks and sometimes even faster. In December 2011,
the DGCA highlighted problems resulting from the expansion could impact safety. On 17
August 2012, IndiGo became the largest airline in India in terms of market share (27%)
surpassing Jett Airway, six years after operations commenced.

2013-14: IndiGo was the second fastest growing low-cost carrier in Asia behind Indonesian
airline Lion Air. However, IndiGo announced that it actually plans to seek permission from
the ministry to acquire four more aircraft, therefore taking the delivery of nine aircraft in
2013. In August 2013, the Center for Asia Pacific Aviation ranked IndiGo among the 10
biggest low-cost carriers in the world.

2015-16: IndiGo placed an order of 250 Airbus A320 Neo aircraft worth $27 billion, making
it the largest single order ever in Airbus history. Indigo announced a Rs.3,200 crore initial
public offering on 19 October 2015 which opened on October 27, 2015. IndiGo, which had a
33.8% share of domestic passenger traffic in the year ended 31 March, reported a net margin
of 9.4%, according to the submission to DGCA.

1.2 The Mission statement

IndiGo is a very quality conscious airline and passenger safety is paramount to our
companys mission and values,"
1.3 Market Share

2. ABOUT THE INDUSTRY:

Tony Tyler, Director-General and CEO of International Air Transport Association (IATA)
has stated that the global world is focussing on Indian aviation, starting from manufacturers,
businessmen, airlines, global businesses, tourism boards to individual travellers and shippers.
According to him, if there is a common goal among all stakeholders in the aviation sector of
India, a bright future can be expected.

2.1 Market size

It has been reported that the air traffic in India has increased over the last five years both in
terms of aircraft movement and passenger traffic. The compound annual growth rate (CAGR)
of total aircraft movements was 3.3% and of passengers 5.6% during FY11 to FY14. In the
next five years too, in terms of the aircraft movements, passengers and freights, the aviation
sector is expected to grow, according to the Airports Authority of India (AAI). The job
market in this sector is also expected to improve in 2015 with a number of new airlines
coming up. Globally, it stands ninth in the civil aviation market. It ranks fourth in domestic
passenger volume. It has been reported that by 2020 the civil aviation market in the country
will become the worlds third largest and is expected to be the largest by 2030. This sounds
really good.
2.2 Factors contributing to the growth of the aviation sector
From an over-regulated and under-managed sector, the aviation industry in India has now
changed to a more open, liberal and investment-friendly sector, especially after 2004. The
civil aviation sector in India has moved into a new era of expansion. Some major factors
contributing to this are:

Higher household incomes

Strong economic growth
Entry of low cost carriers (LCC)
Increased FDI inflows in domestic airlines
Increased tourist inflow
Surging cargo movement
Cutting edge information technology (IT) interventions
Focus on regional connectivity
Modern airports
Sustained business growth and
Supporting Government policies

2.3 Some major threats to the Airline Industry:

A global economic slowdown negatively impacts leisure, optional and business travel.
The continuous rise in the price of fuel is a major threat.
A terrorist attack anywhere in the world can negatively impact air travel.
Government intervention can lead to new costly rules.
Operation of many airlines
Problems facing the aviation sector
High operational costs
High cost of aviation turbine fuel
High service tax and other charges
Shortage of maintenance facilities
High foreign exchange rate
Competition from foreign airlines
Congestion at airports
Lack of qualified pilots and technical manpower

2.4 The Road Ahead

The launching of the new airlines can be an aviation boom in the country as it will lead to an
increase in the number of flights, lower prices, more demand for ground staff and trained
crew, including a rise in finance and leasing activities. However, the real challenge of the
Indian aviation industry is to manage the unprecedented growth of air traffic with safety. The
increase in air traffic has raised the demand for aircrafts. But at the same time, it has also
posed a problem of modernising the airport and air navigation infrastructure so that safe,
efficient and orderly operations are ensured. There is an urgent need to study the causes of
the issues and address them so as not to obstruct the growth path of the aviation sector.

And we should remember that even today, access to aviation is still a distant dream for the
poor and the lower middle class sections of its vast population. So there is a large untapped
potential for growth in the industry as well. It is necessary for the stakeholders to engage and
collaborate with the policy-makers to implement efficient and rational decisions that will
shape the future of the aviation industry. With the right policies and a continued focus on
cost, quality and passenger interests, India would definitely be able to realise its vision of
becoming the third largest aviation market by 2020.

3. EXTERNAL ANALYSIS:
3.1 Porters Five Forces strategy for Airline Industry
3.1.1. Threat of New Entrants

Product differentiation: In low cost carriers, there is not much differentiation in the basic
service that is being provided to the customers. Differentiation can only be achieved by Value
Added Services. IndiGo provides check-in kiosks, stair-free ramps, and Q-Busters. Hence
this argument works in favour of IndiGo.

Switching cost: The switching cost is not high. Customers can easily choose other low cost
carriers. The switching cost of an airline company to other business/industry is high as the
exit cost is high

In aviation industry the major entry barriers can be:

Government regulations/Indian Civil Aviation Policy

Setup costs
Fuel prices
Resource

3.1.2. Bargaining Power of Suppliers

Any airlines in general face a duopoly of two major suppliers of aircrafts i.e. Airbus and
Boeing. There are other suppliers like Dauphin,Dronier,Bell,ATR-42 but do not meet the
requirements to serve the low cost commercial aircraft carriers, particularly Indigo airlines.
Thus, suppliers are few and thus in better position to bargain as they always finds customers
for their aircrafts.

3.1.3. Bargaining Power of Buyers

Buyers in airlines industry are large in number and highly fragmented thus lowering their
power. With the growing Indian economy and increasing low cost carriers, the buyers have
increased and so have the growth opportunities. The switching cost is minimal since there are
multiple alternatives available. It is not difficult to move from one airline to another or to
switch to a substitute. Furthermore the players in the particular strategic group do have
minimalistic differentiating points. Backward integration from the buyers end is very difficult
and next to impossible.

3.1.4. Competitive Rivalry

The aviation industry is a highly competitive industry because of which it is difficult to earn
high returns in this sector. Below are the major reasons for the high competition in the low-
cost carrier airlines:

Very little scope for differentiation between competitors products and services
Aviation is a mature industry with very little growth. The only way to grow is by
stealing away customers from competitors
Suppliers of aircrafts are the same, i.e., Boeing and Airbus. Hence suppliers
bargaining power is high.
Switching cost of customers is high for low cost carriers, i.e., there is no brand
loyalty. Closest competitor of IndiGo is Spice Jet followed by Go Air

3.1.5. Availability of Substitutes

The substitute for low cost airline company is the railways. But this substitute is not very
powerful due to the following reasons:

Customers use airline transport as it is convenient and saves travelling time. So trains cannot
work as a substitute to save time.

Secondly, many customers use airlines as a status symbol. So again, trains cannot substitute
for prestige.

So if we consider IndiGo airlines, the direct substitutes are the other low cost carriers like
SpiceJet and Go Air. So in this case, threat of substitutes is high as the switching cost
between low cost carriers is low
3.2 PEST Analysis:
4. INTERNAL ANALYSIS:
Under Internal analysis we have considered two broad categories: 1) SWOT Analysis & 2)
VRIO analysis.

4.1 SWOT Analysis:

Brand awareness
Less product
Cost leadership differentiation
High market share Not on too many
Advertising and routes
marketing International
strategies absence

Strengths Weaknesses

Threats Opportunities

High fuel prices Cargo services

Continousally Increasing flight
changing FDI frequency
policies International
Barriers to exit market
Chartered flight
services
4.2 VRIO Framework:
VRIO is the acronym from the first letters of the dimensions - value, rareness, imitability, and
organization. So, the first question that has to be answered is whether a resource is valuable.
It is considered valuable if it can increase market share, achieve cost advantages, or both.
Otherwise, it is not a source of competitive advantage. Once a resource is deemed valuable,
the next question is whether it is rare or that it is not available to all competitors. If it is
valuable but not rare, meaning competitors possess the same resources, the organization has
no inherent advantage in this resource. The resource must also be difficult or costly for
competitors to imitate or acquire. This dimension is called imitability, which can result in a
sustained competitive advantage only if the organization can take advantage of it.
Organization is where the resource is supported by any provisions in the company and that it
can be used properly. Otherwise, the resource or capability is of little use. Thus, a resource
that is valuable, rare, costly to imitate, and the company is organized to capture its value can
be a source of sustainable competitive advantage for an organization.

The VRIO analysis for IndiGo is as follows:

Resources & Value Rarity Imitability Organization

Competencies
Low Fares Yes Yes No Yes

Single type of Yes Yes Yes Yes

Aircraft
Turnaround Yes No Yes Yes
Time
Brand Name Yes Yes Yes Yes

Value:

IndiGo has created value and increased its market share by offering the lowest fares to its
customers. The way they do it is through having a single type of Aircraft which reduce
the overall maintenance cost of the Aircraft, since there is only one kind of Aircraft. It
also does Fuel Hedging which reduces the overall cost of fuel.

Rarity:

IndiGo has the highest market share in the 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.
 Imitability:

Even though IndiGo has create 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 and hence, in long run are not sustainable.

Organization:

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.

5. STRATEGIES AT VARIOUS LEVELS

OPERATIONS
Single type of aircraft
single class
low average fleet age
fuel
route planning
tightly framed maintainance contracts
other measures

FUNCTIONAL
LEVEL
STRATERGIES

FINANCIAL MARKETING
ASPECTS low advertising
debt strategic
sale and leaseback marketing
5.1 Functional level strategies
5.1.1 Operations

5.1.1.1 Single type of aircraft

Indigos whole fleet consists of A-320-232 aircraft while Air India, Jet Airways and Spice
Jet use 10, 9 and 3 different makes of aircraft respectively. 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.

5.1.1.2 Single Class

Having only Economy class means that Indigo does not have to spend time, money and crew
on privilege passengers. They also don't need to maintain expensive lounges at airports
further reducing costs.

5.1.1.3 Low average fleet age

Indigo has an average fleet age of less than 3 years. A younger fleet means less maintenance
costs. Indigo plans to maintain a lower fleet age as all its aircraft are leased for a period of 5-6
years. 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.)

5.1.1.4 Fuel

Domestic fuel taxes can be as high as 30 per cent along with an 8.2 per cent excise duty. As a
result, fuel for Indian airlines accounts for about 45 per cent of total operating costs,
compared to the global average of 30 per cent. Indigos 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.

5.1.1.5 Route Planning

Indigo operates over a lesser number of destinations than its 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 at least two cities while most are connected to 3 or more destinations, whereas
this is not the case with Jet Airways. This means Indigo can keep its aircraft in the air for a
longer period of time and save up on airport charges. Because of this Indigo has a high
aircraft utilization rate of more than 11.5 hours per day per plane. This also means that
customers don't have to look for connecting flights with other competing operators.

5.1.1.6 Tightly framed maintenance contracts:

Indigo has a Power by the Hour contract with International Aero Engines (IAE), which
provides the engines that put the onus of performance delivery on the manufacturer. Indigo
has similar agreements with Airbus, as well as with the vendors for other critical 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.

5.1.1.7 Other cost-cutting measures

i. Turnaround time - An airline is charged for the duration its aircraft stays at the
airport. Indigo has a faster turnaround time (time taken between landing and the
next take-off) of 30 minutes. Point 5 is one of the reasons for this. Having a single
make of aircraft again helps in this regard as the time taken by the crew gets
optimized.
ii. Employee Aircraft ratio - Lower employee aircraft ratio of 102 compared to Jet
Airways 130 and Air India's 262.
iii. Stage Length - Average Stage length (flying time per flight) of 1.5 hours, which
means not having to stock and serve hot meals in most flights. This again
contributes to the low turnaround time.
iv. Most Indian airlines take delivery of aircraft by sending their own pilots and
engineers (to Toulouse in the case of Airbus). Indigo prefers to get them delivered
to Delhi, this is costlier but it also leads to better utilization of the available pilots
and the engineering crew.

5.1.2 Marketing

5.1.2.1. Little advertising spend.

5.1.2.2. High reliance on word of mouth marketing in its early days by establishing a
reputation of being a no frills airline which is always clean and on time.

5.1.2.3. Strategic marketing - Indigo advertised heavily when it started international

operations and also when Kingfisher 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 good times.' This move was criticized but it worked for Indigo. The result
of these operational and marketing aspects is visible in Indigo which has a market share
of 30% 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.

5.1.3 Financial

5.1.3.1 Debt:

Indigo has gone on record to say that the company has practically no debt.

5.1.3.2 Sale and Leaseback:

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 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 trains. Indigo has been able to better leverage this by
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 A320s in 2011.

5.2 Corporate level strategies

5.2.1 Range and diversity

IndiGo operates 78 planes for 36 destinations- higher frequency

5.2.2 Corporate growth

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.

5.2.3 Engagement with various travel web-portals and collaboration with hotels has increased
its social capital. Eg: indigo gives 10% discount on the next travel booking if customers had
stayed in any of the tie-up hotels.

5.2.4 Professional Airline management

Indigo paid much attention to its corporate level strategies right since its inception. Its first
CEO, Bruce Ashby, landed in India 18 months before its planned launch.

5.2.5 Change in organisational structure

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.

5.2.6 Salary structure

Unbelievably low.
Experienced commanders: 3-4 lacs pm
Experienced first officers: 2-2.5 lacs pm
New employees: 1 lac pm
Cabin crew: 35-50 k pm
Engineering: 75-80 k pm

The usual scale for the industry is double the amounts here. Contractual jobs, no commitment
on the company's half whatsoever but requiring back breaking efforts in order to renew your
contract every two years to keep the job. 75% of an airlines' monthly bill accounts for the
crew salary.

5.3 Business level strategies

5.3.1 No Frills

The underlying business for a LCC is to get a person from point A to point B. Everything else
is considered to be luxury items or "frills", of which can be acquired for a small fee.

No free food & beverages. Some of our passengers may prefer not to consume food
& beverages when on board. There are those who prefer to rest throughout a flight or
those who prefer having their meals before flying off. Hence we do not force our
guests to purchase something they do not want or need. Guests are most welcome to
purchase food & drinks at an affordable price from our website before the flight, of
from the cabin crew during the flight.

Assigned seating. Guests receive boarding passes with pre-assigned seats and are not
allowed to request for a seat change unnecessarily. If the guests have preferences on
where or with whom they would like to seat on the aircraft, they are able to do so by
paying a small sum when checking-in online. This feature is called Pick-a-Seat.

Ticketless airline. Less hassle for the customer, as guests need not worry about
collecting tickets before travelling. This also allows flight to keep the costs down (less
paper, lower printing and distribution costs) and continue to offer low fares to our
guests.

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

No refund. Airlines waste a lot of money, time and resources due to refunds and
rescheduling when guests do not show up for 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.

Secondary Airports Low cost carriers mostly fly to and from airports that are not
necessarily the busiest. These are often referred to as secondary airports. Operating
from secondary airports is cheaper than the major airports. They are also a lot less
congested and "turnaround times" for aircraft are a lot shorter.

Lean Distribution System 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 Global Distribution Systems, which are very costly. LCC will keep their
distribution channel as simple as possible and will cover the whole spectrum of the
clientele profile. And at the same time, Indigo has an established system to sell our
 tickets to the most remote and technology deprived locations, such as in
Myanmar.

Internet sales. The bulk of sales (85%) are done via the airline's website, whereby the
fares are paid using credit cards, debit cards or via online banking. This is the most
cost effective distribution channel.

Sales office. Indigo must have a few sales offices. We only establish a sales office if
we are confident the sales derived from the centre will be worth it.

Travel agents. LCCs avoid reliance on travel agents as much as possible. This means
that the airlines do not pay any commission to travel agents, which would otherwise
have been reflected in the fares. Also, as LCCs do not use travel agents, we do not use
nor participate in the world wide reservation systems. This allows us to save costs,
which again are reflected in our pricing.

Call centres. Ticket sales can be done via telephone - a simple and cost effective
method

5.3.2 Other strategies

Weight plays a major role in the consumption of fuel in aircrafts, so even a minor reduction
in weight would lead to reduction in fuel consumption which will lead to lesser CO2
emission. Even a reduction in weight of teabag would reduce one kg of CO2 emission.

Below are some strategies that would affect fuel consumption and reduction in waste.

Replacing magazines and instruction booklets with tablets and e-books to save paper
wastage and provide add-ons to the customers.

Lightweight seats and trolleys to reduce the weight in plane.

Use ground power units instead of auxiliary power units when grounded which will
lead to saving of fuel.

Regular wash of engines and other peripheral to increase the efficiency.

6. STRATEGIC MODELS
6.1 Core strategies for cost reduction:
more fuel-efficient aircraft
new technologies and Biofuel to reduce emissions
Installing winglets to reduce drag and fuel use
Removing excess weight
Limiting the airplane idling times
6.2 Value Chain Analysis:

7. STRATEGIC RECOMMENDATIONS:
7.1 Short term:
1. Increase number of destinations served
2. Offer low-priced corporate travel packages
3. Offer red-eye flights
7.2 Long term:
1. Introduce air cargo service
2. Offer flights to unserved destinations through tie-up with FSC

8. CONCLUSION
From the above study and analysis, we can conclude that as already IndiGo airlines is making
its mark in the market; it has a huge scope for further growth. Strategies implemented by the
airline have given good results so far and the same is expected in future. The strategic
recommendations could help the airline take off to newer heights.