IndiGo Airline Strategy_PPT by Suddhwasattwa Mukherjee

July 2016

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

programmes

Case Study: IndiGo Airline Analysis and Presentation by Suddhwasattwa Mukherjee

IndiGo, headquartered in

Gurgaon, India is the largest

airline in terms of passengers

flown with market share of 36.69%

as of February 2016.

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 109 planes and offers 679

flights a day.

Introduction about IndiGo

Introduction to IndiGo Airline…Few key statistics

IndiGo Air India Jet Group SpiceJet GoAir

Air Asia Air Costa Vistara Air Pegasus Trujet

IndiGo

Air India

Jet Group

Spice Jet

GoAir

Air Asia Air Costa Vistara

Air Pegasus

Trujet

22.48%

36.69%

16.45%

11.63%

8.55%

1.72%0.9% 1.31%

0.14%

0.14%

India Domestic

Passenger 2015 –

Annual Market

share by Airlines

85.2 82.4 87 87.480 79.2 76.5 76.3

45.4

0

20

40

60

80

100

IndiGo Air India JetAirways

JetLite SpiceJet GoAir AirCosta

Air Asia Vistara

Passenger Load Factor (%) Year: 2015

73.3

65.8

63.7

52.1

49.6

0 20 40 60 80

IndiGo

Go Air

Jet Group

Air India (Dom)

SpiceJet

On Time Performance in 4 Metro Cities (%)

Year: 2015

Case Study: IndiGo Airline

Our understanding about IndiGo Airline…The Growth journey

2011 - 2012 2013 - 2014 2015 - 2016

IndiGo replaced the state run

flag carrier Air India as the top

third airline in India.17.3%

2011:

Market share

In 2011, IndiGo placed an

order for 180 Airbus

320 Neos aircraft in a deal

worth US$15 billion which

pushed up the percentage of

Airbus aircraft in India to 73%

2011:

180 A-320 Airbus Neos

US$15 Billion

Deal

As of 2012, IndiGo was expanding rapidly and was the only profitable airline in

India.

Replaced Kingfisher as the 2nd 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.

August 2012, IndiGo became the largest

airline in India in terms of market share

(27%) surpassing Jet Airway, 6 years after

operations commenced.

2012:

Market share

Largest

IndiGo was the second fastest growing

low-cost carrier in Asia behind

Indonesian airline Lion Air.

Fastest

Growing

2nd

Fastest

Growing

Indonesian

In August 2013, the Center for Asia

Pacific Aviation ranked IndiGo among

the 10 biggest Low-cost carriers in the

world.

Within Top 10 biggest LCC in

the World

Took delivery of 9 Aircrafts in 2013

In 2015, IndiGo placed an order of 250 Airbus

A320 Neo aircraft worth $27 billion, making

it the largest single order ever in Airbus

history.

2015:

250 Airbus

A-320 Neos

Aircraft

US$27 Billion

Deal

Largest single order

in Airbus history

IndiGo’s Market share in Feb

2015 37%

27%

9.4% IndiGo’s Net Margin FY 2015

IndiGo’s IPO opened in

October 2015INR 3200 Cr

Analysis and Presentation by Suddhwasattwa Mukherjee


Competitor Landscape Mapping…Indian civil aviation sector

22.48% 16.45% 11.63% 8.55% 1.31% 36.69%

116 109 34 21 10 109

Not making

ProfitNot making

Profit

Not making

ProfitUS$ 1.5

million-

US$ 190

million

2015 Domestic

Market share (Passenger number)

No of years in

operation

Parameter

Airlines

Fleet Size

Profit

Jet Group

Tailwinds

Private LimitedAir India

LimitedSpiceJet Wadia Group Tata Sons

InterGlobe

Enterprises

300 488 306 140 87 679

Parent Company

Daily flights

68 84 41 22 17 40

24 70 11 11 1 10

Destinations

Maximum

market share

Maximum

Profit

Maximum flight

operation with a

smaller fleet size


Threat of New

Entrants

Low Switching Costs

Limited Incumbency advantages

Some Demand-side benefits of scale

Easy access to Distribution channels

Easy entry of Foreign Carriers in the International Routes where

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

Regional Carriers start-ups

Bargaining Power of Suppliers

Aircraft and Engine manufacturers are both

concentrated Oligopolies Suppliers like

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

High

High

Bargaining Power of

Buyers

Buyers are highly fragmented –

lowering their power

Low Switching cost for most of

the customers as multiple

alternatives are available

Air travel is perceived as a

standardized product

Price sensitive as travel is a

meaningful share of

discretionary spending

Substitutes are readily available

in the form of railway and

roadway transport in cases

where time is not a very critical

consideration

Porters ‘Five Forces’ in the Industry environment analysis for IndiGo Airline…Forces

shaping up the competitive environment of Indian civil aviation sector

High

Availability of

Substitutes

The number of customers who can afford air travel are increasing

day by day specially in the emerging markets where IndiGo is

operating

Technology for Web / Video conferencing is improving – reducing

business travels

Railways is an alternative, but for shorter routes – not a powerful

substitute in longer routes for the time consumption factor across

India where IndiGo operates

Direct substitutes are low cost airlines like SpiceJet, Go Air – as

buyer’s switching cost is very low

Medium and

Rising

Intra-Industry

Rivalry

Very little scope for differentiation between competitors’ products

and services – closest competitors are Spice Jet, Go Air

Mature Industry with very little growth

No brand loyalty demonstrated by customers

Significant exit barriers

High

Case Study: IndiGo Airline Analysis and Presentation by Suddhwasattwa Mukherjee


External environment analysis for IndiGo Airline using the P.E.S.T Framework

Open Sky Policy / Deregulation (+)

Low Entry barriers (+)

FDI Limits (+)

International Travel Restricts (-)

Modernized Airports (+)

Greenfield Airports (+) Better handling of Aircrafts,

passengers (+)

Video Conferencing (-)

Growing middle class income (+)

Consistent GDP Growth (+)

Hike in average income (+)

Growth in tourism (+)

Rising ATF Price (-)

Growing Middle class (+)

Domestic Leisure travel (+)

Foreign tourists (+)

Status symbol (+)

Security issues and terrorism (-)

Political

Technological

Socio-cultural

(+)

(-)

Enabling Factors

Disabling Factors

Economic


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


Less product differentiation

Not present on too many routes

International absence (only select

International routes at this point – Dubai,

Bangkok, Muscat, Singapore, Kathmandu)

Investment in Research and Development

Changing Govt. Policies and rising labor

costs

Plenty of new Low cost carriers to compete

with

Barriers to exit

Brand awareness

Cost leadership – High profitability and

revenue

High market share and growth rate

Hold on the domestic market

Advertising and marketing strategies

Experienced Business Units and skilled

workforce

International market

New products and services

Middle class taking to the skies

Chartered flight services

Cargo services

Increasing flight frequency

Growth rate and profitability

Strength Weakness

ThreatOpportunities


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


SO WO ST WT

Increase domestic

destinations

Upgrade to Long-haul

aircrafts as per demand

Offering affordable

international holiday

packages to the middle

class travelers

Going International

Expand to freight / cargo

services

Diversify to chartered

flight services

Loyalty, rewards and

other customer retention

programs

Create a tie-up with other

LCC players like Air Asia

for the Indian customer

base to provide last mile

connectivity

Offer business class

seats, continue

innovation of value added

services while focusing

on cost optimization

Effective incentive

programs to prevent

talent drain

Sign anti-poaching

agreement with

competitors

Continue to successfully

hedge fuel prices by

importing

1 2 3 4



Internal analysis for IndiGo Airline using VRIO Framework

Resources and

competenciesValue Rarity Imitability Organization

Low Fares Yes Yes No Yes

Single type of Aircraft Yes Yes Yes Yes

Turnaround Time Yes No Yes Yes

Brand Name Yes Yes Yes Yes

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.

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.

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

1 2 3

VRIO analysis

for IndiGo

4



Functional Level

Strategy

Corporate Level

Strategy

Business Level

Strategy

1

2 3

IndiGo’s strategies at various levels

Operations Strategy

Marketing Strategy

Financial Strategy

Flexible options for purchase of

food and beverages

No Refund

Lean Distribution System

Online Check-in

Internet Sales

Sales Office

Travel Agents

Range and Diversity

Corporate Growth

Professional Airline

management

Strengthening

organizational structure

Well thought out

salary structure



Functional level strategies…IndiGo’s Strategy in Operations

Single type of

Aircraft

IndiGo’s 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.

Single Class -

Economy

IndiGo’s is having only Economy class; they do

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.

Low average

Fleet age

IndiGo has an average fleet age of less than 4

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.)

1

2

3

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% - 50% of total operating costs, compared to the global

average of 30%.

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.

Effective

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.

This also means that customers don't have to look for connecting

flights with other competing operators.

4

5

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.

Tightly framed

Maintenance

Contracts:

6



Functional level strategies…IndiGo’s Strategy in Marketing and Finance

Advertisement Little advertising spend.

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.

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 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.

1

No Frills

2

Strategic

Marketing

3

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

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 A-320s in 2011 and

250 A-320 Neos in 2015

1

Sale and

Leaseback:

2

Marketing Finance



Range and

Diversity IndiGo operates 78 planes for 36 destinations - Higher frequency

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.

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

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.

Strengthening

organizational

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.

Well thought out

Salary structure

Very Low compared to the Industry average - 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..

Corporate level strategies

IndiGo Network

“check-in counters” - handheld device



Flexible options for

purchase of food

and beverages

Some of IndiGo’s 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 IndiGo comes up

with an arrangement where the guests have the flexibility to purchase food or beverages based on their requirement.

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.

Business level strategies

‘No Frills’

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. IndiGo follows the same approach.

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 their tickets to the most remote and technology deprived locations, such as in Myanmar.

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 IndiGo to improve efficiency and reduce congestion in the airport.

Internet Sales

Sales Office

Travel Agents

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.

IndiGo establishes a sales office if they are confident the sales derived from the centre will be worth it.

Does not use travel agents and World wide reservation system – allows IndiGo to save cost, reduce ticket price and

get more number of flyers


100Airbus

A-320

Outcome of IndiGo’s strategy analysis: Critical strategic factors driving the success of the Airline

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.

Buy, sell and lease back’

strategy

Once all airplanes are delivered,

IndiGo will not have a fleet of 530

planes — this is due to the ‘buy,

sell and lease back’ strategy. At

peak they will have 330 planes.

Once the order is placed the planes

are sold to lessors at market price.

The planes are then leased back

for the next six years — which

means for the first six years IndiGo

receives a plane every month.

1 2

180A-320

Neos

250A-320

Neos

2005

2011

2015

At peak, 330 Planes

Fuel efficient planes leading

to lower operational cost

Every month a plane goes out of

IndiGo’s fleet and a new aircraft

joins, thus reducing the average

fleet age; the cost of maintenance

is also lower.

In 2011, IndiGo was the first

customer for Airbus to order the

new range of fuel efficient A-320

Neo planes. Neos help in saving

10-15% of the overall fuel cost.

Fuel makes up for 50% of a

carrier’s cost.

3

10-15% 50%

Fuel cost saving

for IndiGo planes

Fuel

contributes

50% of

Carriers cost

Strategic planning

for Neo based fleet

Because of the 6 year

lease back plan, with the

next two-and-half years

one-third of IndiGo’s

fleet will be Neos, and in

the next 6 years it will

have an all Neo fleet.

There is a straightaway

positive impact of 7% on

the company’s bottom

line because of the

Neos.

4

7%

Bottom line

improvement

due to Neo

based Fleet

Strategic approach to

increase its footprint

With orders in place, IndiGo

is planning to increase its

presence in the number of

cities it flies to - adding two

to three cities to its portfolio

every year. In the next eight

and half years it plans to

have presence in 56

airports compared to 33,

now.

Regional flying is not on the

radar, and neither are

smaller planes.

5

33 56

Growth Plans – number of

Airports operated

3 Cities adding plan

every year



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

Need for segmenting based on

benefits sought-based on in-

depth literature review

Existing segments (identified in

case) not mutually exclusive

collectively exhaustive

Existing Segmentation

Corporate

SME

Leisure

VFR

Student

Consumer insights based on

interviews carried out by

Agencies at various points

Literature review

Proposed Segmentation

Reliability

Comfort

Price

Price-quality

Service flexibility

Segment Description Favorability to Indigo

“I need efficiency and

punctuality” Seek reliability, sensitive to delays, switch brands easily

Low price sensitivityHigh

“I want comfort” Seek benefits from FFP, catering and flexibility

Price is most irrelevantLow

“I am hard-pressed on price” Personal benefits of minor importance

High price sensitivityMedium

“I am price-conscious and

quality seeking” Seek mix of price and quality

Low tolerance to delays, ready to pay premium for punctualityHigh

“I want flexibility across all

offerings” High decision autonomy

Hard to address due to multiple benefits soughtLow

Purpose-based segmentation Benefits-based segmentation

Target Segments

Reliability

Price

Price-quality

Outcome

Analysing current

positioning w.r.t. new

segmentation process

Next step


Planning Phase

Deals for booking well

before the travel date

Last minute deals through

social media for increased

interaction


Key strategies and recommendation for IndiGo Airline…Positioning strategy - Aiming that spot in

consumer’s mind

Product StrategyPromotion Strategy

Value-seeking Segment prefers booking hotels/cabs with flight tickets

Cross-sell ibis-InterGlobe Hotels (Group synergy)

Most travelers buy beverages & light snacks at the airport-

- Price is a major deterrent

Tie-up with shops for a discount for IndiGo customers

Booking cabs after flight adds to hassle

Pre-paid cab booking at destination available before even boarding the flight

- cuts down the hassle

Post-travel Phase

Pre-flight Waiting Phase

o

o

o

R

R

R

Aim

Improve Talkability

Customer Involvement

Channel: Social Media

Driver for Success : Volume of visitors

Deals Contests

CONTESTS like

“My IndiGoStory” depicting

and sharing awesome travel

experiences

Observation

Recommendations

o

R



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

Region

Macro-economic trends

(Growth, industry, aviation

sector, ease of doing

business, ATF prices

Future plans

(Geographic

expansion, aircraft

deliveries)

Industry trends

(Competitive

landscape, costs,

new sectors)

LCC market

(Players, competitor

moves)

Proposed airports

(Growth sectors & their

distances upon entering) Verdict

AfricaAddis Ababa, Nairobi,

Cairo, Morocco

Europe Istanbul, Brussels/Paris Not Now

Middle-East Dubai, Doha, Abu Dhabi

North America Atlanta, New York Not Now

Latin AmericaRio de Janeiro, Sao

Paulo, VenezuelaNot Now

South Asia Colombo, Dhaka

North AsiaHong Kong, Guangzhou,

Shanghai

South-East AsiaBangkok, Singapore,

Jakarta

Favorability for IndiGo’s next phase of growth


Thank You

Presentation by: Suddhwasattwa Mukherjee

Email: [email protected]

Phone: +91 9830135111 (M)