ADVANCED COMPETITIVE POSITION ASSIGNMENT

INDIGO AIRLINES

Introduction

1. IndiGo Airlines is a focused Low Cost Carrier in the Indian domestic air

transport segment. It operates from the national capital Delhi and its tag line says

“low fares, on-time flights and a hassle-free experience” to our passengers. It

commenced operations in August 2006 with a single aircraft, and has grown their

fleet to 97 aircraft. They have a relatively young fleet and the average age of their

aircraft is 3.26 years. IndiGo has:

A single aircraft type

A high operational reliability

An award-winning service

2. It was formed by collaboration of two main promoters, who had much

exposure of Low cost airline operation and also seen bankruptcy of some LCCs up

close in the USA. Mr. Rahul Bhatia is the Promoter and Non-Executive Director of

the Company. Mr. Rakesh Gangwal, a citizen of the United States of America is

the other Promoter and also a Non-Executive Director on the company Board. He

holds a master’s degree in business administration from the Wharton School,

University of Pennsylvania, with a major in finance. He has more than 30 years of

experience in the aviation industry. Mr. Rakesh Gangwal joined United Airlines in

February 1984 where he held positions of various responsibilities before leaving as

Senior Vice President - Planning in November 1994. Mr. Gangwal then joined Air

France as an Executive Vice President - Planning and Development in November

1994. He left Air France in February 1996 to join the US Airways Group, Inc. and

US Airways Inc. as the President and Chief Operating Officer. In November 2001,

he left the US Airways Group as the President and Chief Executive Officer and

was engaged in private equity and consulting related activities.

3. InterGlobe Enterprises Limited is the holding company of IndiGo Airlines.

Inter Globe Enterprises was incorporated as Inter Globe Enterprises Private

Limited on September 13, 1989 under the Indian Companies Act, 1956. InterGlobe

Enterprises is engaged in the business of inter-alia providing services as tourist

and travel agents, transport agents and IATA agents.

4. Indigo Airlines, is the largest domestic Low-cost Airline in India, with a

38.9% market share and 2.8 million passengers as on May-2015¹. Indigo Airlines

maintained its market share lead over other competitors in this industry.

Fig. 1. Source: CAPA- centreforaviation.com

5. Present competitive position of indigo in the domestic Low Cost Carrier

segment in Indian civil transport Industry is poised for start of a major growth

phase and may capture 50 percent of domestic market share by 2018.Total

valuations of Indigo Airlines after the recent market listing has been $4 billion.

Competitive life Cycle Analysis

6. Airline industry by nature is international in nature. Standardisation of

equipment, personal training procedures and generally similar aircrafts makes air

travel highly interchangeable. Moreover safety standards being a state subject,

passengers are assured of reasonable safe air travel world over, whichever airlines

they choose. This makes Airline business highly competitive and all the airlines

have to offer greater value over its rivals for survival.

7. Low cost Air lines in India are presently operating in the beginning of

mature phase. There have been few bankruptcies and few take overs in recent past

like Deccan Airways and failure of King Fisher airlines. Commercial Airline

industry is characterized with long phases, with current Low cost model

approaching some maturity. Change is typically slow to arrive and is mostly lasts

couple of years, especially technological advancements. Because of safety reasons

any new advancement are highly tested and passed after rigorous checks and

balances. Competitive advantages and innovations are mostly expected in

processes and sales innovations. Area of differentiation is also restricted

considering Low Cost model of these airlines.

Fig 2. CLC Analysis Indian LCC industry.

CLC Analysis

MATURE PHASE EMERGENT PHASE

GROWTH PHASE

INDIAN LOW COST CARRIERS

8. During the last 5 – 6 years Indigo has demonstrated excellent dynamic

strategic capability. It has not only maintained focus on low cost operations and

OTP (on time performance) but also gauged the future scenario correctly. Various

trade bodies were forecasting major traffic growth in the Indian domestic market,

but world over the airlines were reeling in losses or cutting operations to reduce

losses. In this scenario Indigo bargained and secured an order of 250 Airbus Neo,

at highly discounted price. Now the time to reap benefits of that calculated

decision has come. For next five years Indigo can enhance capacity at a very low

cost as compared to its competitors and thus position them-selves in a very

favorable competitive position.

9. It is highly unlikely to witness any significant disruption in the Indian LCC

market. This industry has been adapting to international innovations and

breakthroughs by adapting or by acquiring international practices and

management. In the international scenario there may be a Disruption waiting to

happen by way of new innovative sales offering like low cost shuttle with

guaranteed accommodation (at low cost). World over, the Hub and Spoke model is

under stress especially after arrival of LCCs, there may be a rediscovery of

integrated low cost hub and spoke operation by utilising A380 Class of aircrafts by

alliances of LCCs and extending low cost last leg at a very attractive price.

Internationalization Analysis

10. Indigo has been a focused domestic operator but however since 2012 has

scaled up operations to 5 neighboring countries. However, as compared to its

domestic operations, international operations are miniscule. Considering cost of

operations to Gulf States, which are comparable to local domestic operations,

Indigo should expand operations to these destinations manifold. Beginning Mar

2016 deliveries of initial batch of Airbus Neo 320 will start which will lead to

dramatic increase in capacity. In addition to notching up operations in domestic

sectors, Indigo should aggressively utilize its spare capacity in this lucrative sector.

INDIGO

HL

HH

LL LH

FDI

Fig 3. Internationalization matrix.

11. Available facts point towards present competitive advantageous position of

Indigo Airlines. Low costs of operations, surplus capacity coupled with falling

ATF prices propel Indigo towards a very valuable position to capture significant

Indo Gulf market. If Indigo markets aggressively its extensive domestic network as

last leg connectivity for international travellers along with its Indo Gulf

connectivity, it can reap good benefits. Passenger profile in this sector mainly

constitutes price sensitive travellers, so making available low cost international

flights with extensive connecting domestic leg will be a major value preposition

for this price sensitive market segment. Relevant capabilities of Indigo which will

support its internationalization efforts are its proven expertise in Low cost on time

operations, high efficiency, local reputation, innovative pricing and good track

record of strong sales effort. Indigo has great knowledge pool of Gulf Operation

and exceptional knowledge and experience of sustained low cost small to medium

haul operation. These capabilities coupled with growing demand offer exciting

Internationalization strategy.

Diversification Strategy.

12. With the present business model and a working low cost model Indigo

should not go for any vertical diversification. However Indigo should and is

actually working on horizontal diversification of expanding operations to tier two

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and other towns of India. It will enable Indigo to tap the high growth in domestic

traffic by scaling operations, which is presently its strong position.

13. An area where Indigo can diversify is extensive cargo operations by night.

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 Considering Indigo has mostly opted for

"power by hour" type of contracts for aircraft operation; higher aircraft utilization

will not offer any operational difficulties for the airline. Scaling up cargo

operations will satiate the ever increasing faster cargo demands of growing e-retail

industry in domestic market. Current utilization rate of 11.5 hrs per day can

actually be further pushed up to at least 14 to 15 hrs per day by introducing some

cargo and by combining Red – eye Flights.

14. Another area where Indigo can evaluate diversification is working out

value addition for its passengers by offering bundled app driven taxi services for

airport pick up and drop. Rather than starting its own app based taxi service, it

should tie up with existing players like Uber and Ola. Working on a revenue

sharing model rather than owning a subsidiary will enable roll out of highly value

driven service for its passengers without any expenditure and also increase its

bottom line.

LH indigo

HH

LL HL

Competitive advantage

fig 4 diversification matrix.

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Stakeholder analysis

15. Indigo Airlines has been able to develop a unique competitive position that

allows it to create value for its key stakeholders. The company has a clear long

term business strategy of positioning itself as a clear market leader in LCC

segment in India. Its competitive position is able to align its values, opportunities

and capabilities in a very effective way and is able to become fastest growing

profitable LCC in India. There have been no reports of any negative issue

regarding any primary or secondary Stake holder of Indigo Airlines. The Company

is not only successfully able to create financial returns but also to impact the

society positively as a whole. Exhibit 1, Stakeholder map depicts key stakeholders

and the value proposition offered by Indigo Airlines.

Synthesis of Findings

16. Indigo has been making all the right moves on the strategic planning front.

Company has been able to maintain focus on low cost operation and on time

performance. Its cost of capital has been under control and they have been able to

sustain value for customers in the long run, without increasing ticket price. Its

strategic move of aircraft acquisition at the time of market slump has proved to be

a master stroke and likely to help company position itself in an enviable position.

17. With the Indian Government coming out with its latest draft Aviation Policy

and Open Sky Policy consumers will be benefitted. Air Operators are likely to face

tough challenges and there may be few bankruptcies, in years to come. In order to

enter the next orbit of growth the company needs to continue with its operations

and also evaluate its diversification strategy. With tough competition and high

interchangeability, companies need to innovate and offer better value than

competitors. In any case company is poised to enter high growth cycle if no

external negative factor is experienced.

Exhibit 1

Stake Holder Map

type of

stakeholder

Stake-

holders

Issues

Primary

stake

holders

Owners

1. Profitability: Indigo is most profitable

LCC in India.

2. Growth :It has high growth prospects

3. Company Brand :It has high brand

equity.

Passengers

1. Economy of travel: It is leading low

cost airline with transparent low prices.

2. Quality of service: New aircrafts good

cleanliness.

3. On Time Performance: Best on time

performance.

Employees

1. Career Progression :Transparent HR

policy

2. Equitable Remuneration: Industry

standards being followed. Low employee

churning rate.³

3. Healthy Work Environment: Positive

work environment.

4. Job Satisfaction: Transparent terms and

conditions listed in the website.

Suppliers

1. Financial Integrity: Timely payments.

2. Business growth : enhanced orders.

3. Fairness : Transparent deals.

Primary

stake

holders

Community

1. CSR Policy: Reasonable CSR policy

2. Pollution and noise issues: Though

Industry generic points, but offers

opportunity to indigo to take initiative.

Secondary

stake

holders

Government

1. Regulator directives. DGCA Directives

and other business rules and ethics.

2. Employment Generation: Any

expansion plans involving employment

generations generally welcomed by govt.

Advocacy

Groups

1. Unfair Trade practice: No such issues

should flair up in public space.

2. Treatment to women worker issues: Indigo follows all the directives issued by

women welfare deptt.

3. Environment issues. Various NGOs

further this aspect in the public space.

4. Transparency: With the

implementation of RTI Act in India

Transparency has been ensured in public

space.

References

1. http://centreforaviation.com

2. IndiGo schedules, Indigo official website.

3. https://www.glassdoor.co.in