IndiGo Airline: Strategy Presentation

Presentation by: Suddhwasattwa Mukherjee

July 2016

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

Introduction to IndiGo AirlineFew key statistics

Air Asia

1.72%

GoAir

Introduction about IndiGo

Air Costa

Vistara

0.9%

Air Pegasus

1.31%

0.14%
Trujet

8.55%

0.14%

Spice Jet

IndiGo, headquartered in
Gurgaon, India is the largest
airline in terms of passengers
flown with market share of 36.69%
as of February 2016.

India Domestic
Passenger 2015
Annual Market
share by Airlines

36.69%
Jet Group

16.45%

Passenger Load Factor (%)

100

85.2

82.4

80

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.
Case Study: IndiGo Airline

Air India

22.48%

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

11.63%

87

87.4

80

79.2

IndiGo

Air India

Jet Group

SpiceJet

GoAir

Air Asia

Air Costa

Vistara

Air Pegasus

Trujet

On Time Performance in 4 Metro Cities (%)

Year: 2015

Year: 2015
76.5

SpiceJet

76.3

49.6

Air India (Dom)

60

52.1

45.4

40

Jet Group

20

Go Air

IndiGo
IndiGo Air India

Jet
JetLite SpiceJet GoAir
Airways

Air
Air Asia Vistara
Costa

63.7
65.8
73.3

20

40

60

80

Analysis and Presentation by Suddhwasattwa Mukherjee

Our understanding about IndiGo AirlineThe Growth journey

2011 - 2012
IndiGo replaced the state run
flag carrier Air India as the top
third airline in India.
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:
Market share

17.3%

IndiGo was the second fastest growing

low-cost carrier in Asia behind
Indonesian airline Lion Air.

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.

Indonesian
2011:
180 A-320
Airbus Neos

Fastest
Growing
Billion
Deal

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

27%

2015:
250 Airbus
A-320 Neos

US$15

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

Case Study: IndiGo Airline

2015 - 2016

2013 - 2014

2nd

Aircraft

US$27
Billion
Deal

Fastest
Growing

Largest single order

in Airbus history

Took delivery of 9 Aircrafts in 2013

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

37%

IndiGos Market share in Feb

2015

9.4%

IndiGos Net Margin FY 2015

INR 3200 Cr

IndiGos IPO opened in

October 2015

Analysis and Presentation by Suddhwasattwa Mukherjee

Competitor Landscape MappingIndian civil aviation sector

Airlines
Parameter

2015 Domestic
Market share

Jet Group

22.48%

16.45%

11.63%

8.55%

1.31%

36.69%

24

70

11

11

10

116

109

34

21

10

109

68

84

41

22

17

40

Not making
Profit

Not making
Profit

Not making
Profit

US$ 1.5
million

US$ 190
million

Tailwinds
Private Limited

Air India
Limited

SpiceJet

Wadia Group

Tata Sons

InterGlobe
Enterprises

(Passenger number)

No of years in
operation
Fleet Size

Destinations

Profit

Parent Company

Daily flights

Case Study: IndiGo Airline

300

488

306

140

87

679

Maximum
market share

Maximum
Profit

Maximum flight
operation with a
smaller fleet size

Analysis and Presentation by Suddhwasattwa Mukherjee

Porters Five Forces in the Industry environment analysis for IndiGo AirlineForces
shaping up the competitive environment of Indian civil aviation sector
High

High

Threat of New
Entrants

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

Case Study: IndiGo Airline

High
Intra-Industry
Rivalry

Medium and
Rising
Availability of
Substitutes

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

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

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
buyers switching cost is very low

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

Analysis and Presentation by Suddhwasattwa Mukherjee

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

Technological

Open Sky Policy / Deregulation

Low Entry barriers (+)

FDI Limits

International Travel Restricts (-)

(+)

(+)

Economic

Modernized Airports (+)

Growing middle class income (+)

Greenfield Airports (+)

Better handling of Aircrafts,
passengers (+)

Consistent GDP Growth (+)

Hike in average income (+)

Growth in tourism (+)

Video Conferencing (-)

Rising ATF Price (-)

Socio-cultural

Case Study: IndiGo Airline

Growing Middle class (+)

Domestic Leisure travel (+)

Foreign tourists (+)

Status symbol (+)

Security issues and terrorism (-)

(+)

Enabling Factors

(-)

Disabling Factors

Analysis and Presentation by Suddhwasattwa Mukherjee

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

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

Case Study: IndiGo Airline

Strength

Weakness

Opportunities

Threat

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

Analysis and Presentation by Suddhwasattwa Mukherjee

TOWS Analysis: Strategic analysis used to study the environment for IndiGo and its interior
1

SO

Increase domestic
destinations
Upgrade to Long-haul
aircrafts as per demand
Offering affordable
international holiday
packages to the middle
class travelers

Case Study: IndiGo Airline

WO

Going International
Expand to freight / cargo
services
Diversify to chartered
flight services
Loyalty, rewards and
other customer retention
programs

ST

Effective incentive
programs to prevent
talent drain
Sign anti-poaching
agreement with
competitors
Continue to successfully
hedge fuel prices by
importing

WT

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

Analysis and Presentation by Suddhwasattwa Mukherjee

Internal analysis for IndiGo Airline using VRIO Framework

Resources and
competencies

VRIO analysis
for IndiGo

Value

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

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

Case Study: IndiGo Airline

Rarity

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.

Imitability

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

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 and strategic
initiatives.

Analysis and Presentation by Suddhwasattwa Mukherjee

IndiGos strategies at various levels

1
Operations Strategy
Functional Level
Strategy

Marketing Strategy
Financial Strategy

Flexible options for purchase of

food and beverages

Range and Diversity

3
No Refund

Corporate Growth

Lean Distribution System

Professional Airline
management

Corporate Level
Strategy

Business Level
Strategy

Online Check-in

Strengthening
organizational structure

Well thought out

salary structure

Case Study: IndiGo Airline

Internet Sales
Sales Office
Travel Agents
Analysis and Presentation by Suddhwasattwa Mukherjee

Functional level strategiesIndiGos Strategy in Operations

1
Single type of
Aircraft

2
Single Class Economy

3
Low average
Fleet age

Case Study: IndiGo Airline

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.

4
Fuel

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.

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.

IndiGos 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.
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 Dcheck may take up to 2 months during which the
aircraft remains out of service.)

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%.

5
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.

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.
Analysis and Presentation by Suddhwasattwa Mukherjee

Functional level strategiesIndiGos Strategy in Marketing and Finance

Finance

Marketing

1
Advertisement

Little advertising spend.

Debt

2
No Frills

3
Strategic
Marketing

Case Study: IndiGo Airline

Indigo has gone on record to say that the company

has practically no debt.

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.

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 A-320s in 2011 and
250 A-320 Neos in 2015
Analysis and Presentation by Suddhwasattwa Mukherjee

Corporate level strategies

Range and
Diversity

Corporate Growth

IndiGo operates 78 planes for 36 destinations - Higher frequency

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..

Case Study: IndiGo Airline

IndiGo Network

check-in counters - handheld device

Analysis and Presentation by Suddhwasattwa Mukherjee

Business level strategies

No Frills
Flexible options for
purchase of food
and beverages

Some of IndiGos 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
IndiGos website before the flight, of from the cabin crew during the flight.

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

Case Study: IndiGo Airline

Analysis and Presentation by Suddhwasattwa Mukherjee

Outcome of IndiGos strategy analysis: Critical strategic factors driving the success of the Airline
1
IndiGo ensured that its average fleet
age remains 4 years till 2032

Buy, sell and lease back

strategy

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.
IndiGos bulk buying helped negotiate better
rates.
Gained right at the beginning this is netted
against IndiGos rentals and brings the cost
down.

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.

Fuel efficient planes leading

to lower operational cost
Every month a plane goes out of
IndiGos 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
carriers cost.

Strategic planning
for Neo based fleet

Strategic approach to
increase its footprint

Because of the 6 year

lease back plan, with the
next two-and-half years
one-third of IndiGos
fleet will be Neos, and in
the next 6 years it will
have an all Neo fleet.

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.

There is a straightaway
positive impact of 7% on
the companys bottom
line because of the
Neos.

100
Airbus
A-320

2005

10-15%

50%

180
A-320
Neos

2011

250
A-320
Neos

2015

At peak, 330 Planes

Fuel cost saving
for IndiGo planes

Fuel
contributes
50% of
Carriers cost

7%
Bottom line
improvement
due to Neo
based Fleet

33

56

Growth Plans number of

Airports operated

3 Cities adding plan

every year

Analysis and Presentation by Suddhwasattwa Mukherjee

Key strategies and recommendation for IndiGo AirlineRelook at the current segmentation process
Existing segments (identified in
case) not mutually exclusive
collectively exhaustive
Need for segmenting based on
benefits sought-based on indepth literature review

Proposed Segmentation

Existing Segmentation

Consumer insights based on

interviews carried out by
Agencies at various points

Corporate
SME
Leisure
VFR
Student

Literature review

Purpose-based segmentation

Segment

Description

Reliability
Comfort
Price
Price-quality
Service flexibility

Benefits-based segmentation

Outcome

Favorability to Indigo

Target Segments
I need efficiency and
punctuality

Seek reliability, sensitive to delays, switch brands easily

Low price sensitivity

High

I want comfort

Seek benefits from FFP, catering and flexibility

Price is most irrelevant

Low

I am hard-pressed on price

Personal benefits of minor importance

High price sensitivity

Medium

I am price-conscious and
quality seeking

Seek mix of price and quality

Low tolerance to delays, ready to pay premium for punctuality

High

I want flexibility across all

offerings

High decision autonomy

Hard to address due to multiple benefits sought

Low

Case Study: IndiGo Airline

Reliability
Price
Price-quality

Next step
Analysing current
positioning w.r.t. new
segmentation process

Analysis and Presentation by Suddhwasattwa Mukherjee

Key strategies and recommendation for IndiGo AirlinePositioning strategy - Aiming that spot in
consumers mind
Promotion Strategy
Product Strategy

Observation

Recommendations

Aim

Planning Phase

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

Cross-sell ibis-InterGlobe Hotels (Group synergy)

Pre-flight Waiting Phase

Most travelers buy beverages & light snacks at the airport- Price is a major deterrent

Tie-up with shops for a discount for IndiGo customers

Post-travel Phase

Booking cabs after flight adds to hassle

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

Case Study: IndiGo Airline

Improve Talkability

Customer Involvement

Channel: Social Media

Driver for Success : Volume of visitors

Contests

Deals

Deals for booking well

before the travel date
Last minute deals through
social media for increased
interaction

CONTESTS like
My IndiGoStory depicting
and sharing awesome travel
experiences

Analysis and Presentation by Suddhwasattwa Mukherjee

Key strategies and recommendation for IndiGo AirlineIdentifying 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

Africa

Addis Ababa, Nairobi,

Cairo, Morocco

Europe

Istanbul, Brussels/Paris

Middle-East

Dubai, Doha, Abu Dhabi

North America

Atlanta, New York

Not Now

Latin America

Rio de Janeiro, Sao

Paulo, Venezuela

Not Now

South Asia

Colombo, Dhaka

North Asia

Hong Kong, Guangzhou,

Shanghai

South-East Asia

Bangkok, Singapore,
Jakarta

Not Now

Favorability for IndiGos next phase of growth

Case Study: IndiGo Airline

Analysis and Presentation by Suddhwasattwa Mukherjee

Thank You

Presentation by: Suddhwasattwa Mukherjee

Email: [email protected]
Phone: +91 9830135111 (M)