Faculty Name: Mr.

Anchal Gupta

Subject: Strategic Management

Title of the Case: SpiceJet as a Leader and Looser

Topic Covered: Cost leadership Strategy, Turnaround Strategy, SWOT Analysis

Overview of illustration:

SpiceJet is an Indian low-cost airline and certainly it will guide all MBA students that how a small
company started their business and became fourth largest airline by domestic passenger share.

Here students will learn that how a company which is losing market position but still is holding price
leadership tag (Cost leadership Strategy) and just within short span of time same company is thinking for
coming back strategy. Within the case we will discuss the SWOT analysis of SpiceJet, proper
understanding of the case will help budding entrepreneurs.

SpiceJet has implemented many such strategies in order to stand proactively in innovative and
competitive external environment.

The topics touched are:

1. Cost leadership Strategy

About SpiceJet Airline

It is the country's fourth largest airline by domestic passenger share. The airline operates more than
230 daily flights to 42 destinations, including 34 Indian and 8 international cities using a fleet of Boeing
737 Next Generation and Bombardier Dash 8 Q400 aircraft. The airline began services in May 2005 and
has its corporate office in Gurgaon, Haryana.
In 2004, Ajay Singh raised funds and restarted operations as SpiceJet following the low-cost model.
SpiceJet leased 3 Boeing 737-800 aircraft. On 7 March 2005, the Airports Authority of India approved
three overnight parking slots to SpiceJet, with two in Delhi and one in Mumbai. SpiceJet opened
bookings on 18 May 2005. The first flight was flagged off by then Union Minister of Civil Aviation, Praful
Patel. The first Boeing 737-800 aircraft left Indira Gandhi International Airport, New Delhi for
Chhatrapati Shivaji International Airport, Mumbai on 24 May 2005. By 2008, it was India's second-largest
low-cost carrier in terms of market share.

Awards and Achievements

 India’s Best Low Cost Airline by Outlook Traveller (2008, 2010, 2011 & 2012)
 India’s International Low Cost Carrier of the Year- 2012 by Travel Agents Association of India.
(TAAI)
 India’s Most Outstanding Airline LCC-Domestic Award, by Travel and Hospitality. (2012)
 Best LCC Website at 'World Low Cost Airlines Asia Pacific Conference', Singapore. (2010, 2011 &
2012)
 India's Top 100 CIO Award for customer satisfaction and business growth category. (2007, 2008,
2009, 2011 & 2012)
 India’s best low-fare airline in a survey conducted by Mars on behalf of Hindustan Times (Dec
2009)
 World Travel Market Award for multi-channel approach in distribution. (2009)
 National Award (ICWAI) for excellence in Cost Management. (2009)

What took SpiceJet close to the exit?

In 2012, SpiceJet suffered from a loss of over 390 million (US$6.1 million) owing to increase in global
crude prices. On 9 January 2012, the Directorate General of Civil Aviation, reported that several airlines
in India, including SpiceJet, have not maintained crucial data for the flight operations quality assurance
or the FOQA. The Bombay stock exchange announced that ever since June 2011, SpiceJet had been
suffering losses. In 2012, Despite the losses, Kalanithi Maran increased his stake in SpiceJet by investing
1 billion (US$16 million) in the airline. The airline returned to making profits at the end of the year. In
2013, SpiceJet launched its first interline pact with Tiger air on 16 December 2013.
 SpiceJet

Parent Company Spice Jet

Category Indian domestic sector

Sector Airlines

Tagline/ Slogan Flying for everyone; Get More When You Fly

USP Lowest Price

STP

Segment Cost Conscious Passengers

Target Group Lower Middle Class / Middle Class

Positioning Low Cost No Frills

SWOT Analysis

1. Strong backing by the Promoters

3. One of the largest low cost carriers in India

4. Has a reach to around 35 Indian destinations

Strength 5. Good presence in the market due to its branding and advertising

1. Low market share due to presence of significant competition

Weakness 2. Has limited destinations and no international presence

1. Middle Class taking to the skies

2. More opportunities to grow on popular routes and destinations

Opportunity 3. International tie-ups would boost brand image and reach

1. Strong competition in LCC segment

Competition

1.Indigo
2.Go Air
Competitors 3.JetKonnect
Wrong Turns

In July 2014, SpiceJet announced up to 50 per cent discounts due to competition. In December 2014,
SpiceJet cancelled many domestic flights across the country. Directorate General of Civil Aviation (DGCA)
issued warning over non-payment of salaries and dues, while the airport operators moved to put the
carrier on cash-and-carry mode, which means the airline can use the facilities of an airport only upon
immediate payment. On December 17, all flights were grounded after oil companies refused to refuel its
planes. Flights resumed the next day. In January 2015, the board of directors of SpiceJet transferred
control of the airline to Ajay Singh, the founder of SpiceJet who also used to run the airlines earlier.

Reasons behind SpiceJet's downfall

SpiceJet has resumed flight operations but it will be difficult for it to pull through in coming days due
to lack of equity infusion.

One would never have thought that SpiceJet, India’s second largest airline with around 20 per cent
market share would be on the verge of going bust so soon. The airline’s customer care helpline is
flooded with calls from fliers who are now seeking a refund for seats booked in advance. Source-based
media reports on Wednesday morning (December 17, 2014) suggested that SpiceJet has grounded
almost all its flight due to oil marketing firms denying fuel to the cash-strapped carrier. Though, the
airlines chief commercial officer Sanjiv Kapoor has assured to resume flight operations, the industry is
unsure about the airline's capability to operate flights smoothly henceforth. It is not long ago, when in
2012, SpiceJet and it arch rival Indigo had gained maximum market share from erstwhile Kingfisher
Airline's debacle. Today, destiny has taken its own course and the 9-year old carrier is desperately
seeking funds to run daily operations without any hurdles. The politically-connected promoter of the
airline, Kalanithi Maran has assured to immediately infuse Rs 200 crore (Rs 2 billion) into the ailing
carrier. But is this amount sufficient for the airlines to fly all its aircraft in full swing?

The answer is certainly ‘no’ and here’s why

During the September quarter of financial year 2015, the airline paid around Rs 750 crore (Rs 7.5 billion)
towards fuel purchase, Rs 1.10 billion (Rs 110 crore) as airport charges, employee cost came to around
Rs 140 crore (Rs 1.4 billion). Overall expense was around Rs 1,829 billion (Rs 18.29 crore). Though, the
airline trimmed its losses by around 45 per cent to Rs 3 billion; it still remained in the red year-on-year
during the quarter gone by. But industry watchers and travel agents had seen SpiceJet’s downfall
around a year back.

Frequent offers were not a good idea

“The airline frequently indulged in discount schemes and promotional fares which strengthened its
market share and cash flows temporarily. For instance, SpiceJet managed to mop us over Rs 400 crore-
500 crore (Rs 4-5 billion) by announcing Diwali dhamaka offers, early bird sale, super sale in which it sold
all-inclusive tickets at Rs 1,800.

High airport charges, steep fuel cost hurt most

It’s not only the case with SpiceJet, other airlines too are facing the heat of high cost environment
prevalent in the aviation industry. ATF is the highest cost component to any airline and dominates over
75 per cent of the total expenditure to any airline.
Promotional Schemes

SpiceJet announced the launch of the ‘Cheaper Than Train Fares’ sale offer with one-way fares pegged
at a starting price of just Rs 599 all-inclusive for domestic flights. SpiceJet says offer is also available for
international flights (except Colombo, Kabul and Dubai-Ahmadabad-Dubai sectors), at fares starting Rs
3,499 all-in.

Bookings under this latest SpiceJet offer are open now and will close at midnight on February 13, 2015.
The travel period covered in this sale is from July 1, 2015 to October 24, 2015.

Under this offer, tickets on routes like Hyderabad to Vijayawada, Delhi to Dehradun, Guwahati to
Kolkata, Ahmedabad to Mumbai, and Bangalore to Hyderabad are all priced at Rs. 599. International
flights start as low as Rs 3,499 all-in for Delhi to Kathmandu, with discounted fares available on most
other international routes too. A total of 400,000 seats are for sale under this offer, of which 100,000
are at the rock-bottom Rs 599 all-in fare.

1. Discuss the cost leadership strategies of SpiceJet?