Strategic Management INDIGO AIRLINES

Europe Asia Business School

Strategic Management
Your Tutor's Name: Prof. Bella Butler

Full name of the student: Deepak Namram Student number: 09104

Full name of the student: Gargi Kumari Student number: 09105

Full name of the student: Sujata Sah Student number: 09121

Due Date: 10th Sep 2009 Date submitted: 10th Sep 2009

We declare the attached assignment is our own work and has not previously been
submitted,
in whole or in part, for assessment in any other unit. We have retained a copy of
this
assignment for my own records.

Signed ___________________________________________________

Signed ___________________________________________________

Signed ___________________________________________________

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INDEX

Executive Summary 3

Introduction 4

External Environment Analysis 6

Airline Industry Attractiveness 6

Porter’s Five Forces 6

Opportunities 11

Threats 12

Internal Environment Analysis 13

Tangible Resources 13

Intangible Resources 13

Criteria of Sustainable Competitive Advantage 15

Value Chain Analysis 16

Strength 17

Weakness 17

TOWS 18

Feasible alternatives 19

Final Recommendation 20

APPENDIX A 21

APPENDIX B 24

BIBLIOGRAPHY 25

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Executive Summary

Objectives
The objective of this report is to study the external environment of the Aviation
Industry in
India. Subsequently, internal environment analysis is conducted for IndiGo
Airlines. With the
help of this comprehensive study, we have suggested recommendations that can be
adopted
by IndiGo to sustain its competitive advantage by utilizing its cost leadership
strategy.

Methods
To understand the important factors responsible for the formulation of corporate
strategy, we
have utilized Strategic Management tools like Porter’s Five Forces model, Value
Chain
analysis, TOWS matrix etc.

Limitations
Due to confidentiality clause and corporate policies of the company, accurate
financial data
could not be obtained for IndiGo Airlines. However, most recent and reliable data
sources
have been referenced for the analysis of this case.

Findings
IndiGo airlines entered the low cost carrier market in aviation industry in 2006.
It has been
able to achieve its break even within two years of its launch and has reported
gross revenue
of 60 crores this year. Despite the decline in the aviation industry and global
economic
slowdown, IndiGo has accelerated its growth rate. Also, IndiGo being a new entrant
has
managed to become a cost leader in its sector.

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Introduction
India is one of the fastest growing aviation industries in the world. Because of
the
introduction of liberalization policy in the Indian aviation sector, the industry
has witnessed a
vast difference with the entry of the privately owned full service airlines and low
cost
carriers. In 2006, the private carriers accounted for around 75% share of the
domestic
aviation market. Besides, there was significant increase in the number of domestic
air travel
passengers. Some of the factors that have resulted in higher demand for air
transport in India
include the growing purchasing power of middle class, low airfares offered by low
cost
carriers and the growth of the tourism industry in India. In addition to the
liberalization
policy, the deregulation policy has also played a major role to encourage private
players in
the aviation industry. Below graph shows the gradual growth in the domestic air
traffic:

The growth in the aviation industry looked promising and hence attracted many low
cost
carriers like SpiceJet, GoAir and IndiGo after the success of Air Deccan in 2003
[Exhibit 1].
On one hand, the booming opportunities incited players to expand capacity but on
the other
hand, rising fuel costs and taxation rates, increased the operational costs. Thus
the low-cost
players found it difficult to maintain their commitment. In their urge to survive,
they were
compelled to increase prices, add free refreshments and beverages on-board, etc.
Some
players sought refuge in mergers, whereas some survived by modifying their business
model.
However, amidst this aviation turmoil, IndiGo continued to fly high. In its
endeavour to
consistently maintain low costs, IndiGo resorted to measures like outsourcing and
having a
homogeneous fleet. These efforts helped IndiGo to offer its passengers low air
fares.

IndiGo is the latest entrant as a low cost carrier in the aviation industry of
India. It started its
operations on August 4, 2006. InterGlobe Enterprises, a renowned travel
corporation, is the
owner of IndiGo. The IndiGo team uses all of these resources to design processes
and rules
that are safe and simple, that make sense, and that cut waste and hassles, which in
turn
ensures a uniquely smooth, seamless, precise, gimmick-free customer experience at
fares that
are always affordable. It was awarded the title of ‘Best Domestic Low Cost Carrier’
in India
for 2008. The airline currently operates 120 daily flights with a fleet of nineteen
brand new
Airbus A320 aircraft and flies to 17 destinations. IndiGo plans to serve
approximately 30
Indian cities by 2010, with a fleet of approximately 40 A320s.1

Below are the key factors of the business model of IndiGo airlines:

• A single passenger class.

• Single type of airplane to reduce training and service cost.
• No frills such as free food/drinks, lounges.

1
http://www.interglobe.com/ig-aviation.aspx

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• Emphasis on direct sale of ticket through Internet to avoid fee and

commissions paid
to travel agents.
• Employees working in multiple roles.
• Unbundling of ancillary charges to make the headline fare lower.

In this report, we will analyse what strategies IndiGo followed to enter the
aviation industry.
Also, we will discuss how IndiGo implemented the low cost strategy to gain
competitive
advantage and provide recommendations to sustain its competitive position in the
long-term.

To know about the industry attractiveness of aviation and the factors that helped
IndiGo enter
this market, we will use the Porter’s Five Forces model. This will be useful in
gaining insight
about the entry barriers, power of buyers and suppliers, competition among the
existing
players and the feasible alternatives in aviation industry.

SWOT analysis of the company will help us understand the current positioning of the
company based on the analysis of external and internal environments. For internal
analysis,
we will study the criteria for sustainable competitive advantage as well as the
Value Chain
Analysis. This will help identify the strengths and weaknesses of the company.
Further, the
analysis of government policies, competitor’s strategies and other variables like
fuel prices,
increasing domestic traffic, economic downturn etc will lead us to the external
influences that
affect the aviation industry of India. Hence, using the external environment study,
we can
come to know about the opportunities and threats for IndiGo airlines. Thus, the
consequences
and influence of the all factors of SWOT taken together will aid in the formulation
of
alternative strategic actions that IndiGo may consider to sustain its competitive
advantage.

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External Analysis
Airline Industry Attractiveness
1. Foreign equity allowed:
Foreign equity up to 49 per cent and NRI (Non-Resident Indian) investment up
to 100
per cent is permissible in domestic airlines without any government approval

2. Attraction of foreign shores:

After five years of domestic operations, many domestic airlines too will be
entitled to
fly overseas by using unutilised bilateral entitlements to Indian carriers.

3. Rising income levels and demographic profile:

Demographically, India has the highest percentage of people in age group of
20-50
among its 50 million strong middle class, with high earning potential.

4. Untapped potential of India's tourism:

Tourist arrivals in India are expected to grow exponentially, especially due
to the
open sky policy between India and the SAARC countries and the increase in
bilateral
entitlements with European countries, and US.

5. Glamour of the airlines: No industry other than film-making industry is as

glamorous
as the airlines. Airline tycoons from the last century, like J. R. D. Tata
and Howard
Hughes, and Sir Richard Branson and Dr. Vijaya Mallya today, have been
idolized.

Porter’s Five Forces strategy for Airline Industry

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:

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

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In aviation industry the major entry barriers can be:

• Government regulations:

1. The government's open sky policy has encouraged many overseas players to
enter the
aviation market.
2. Aviation was primarily a government owned industry. Due to liberalisation
Indian
aviation industry is now dominated by privately owned full-service
airlines and low-
cost carriers. Private airlines account for around 75 per cent share of
the domestic
aviation market.2

Indian Civil Aviation Policy:3

3. Private sector is allowed to operate scheduled and non-scheduled

services.
4. Operator should be a citizen of India or a company or a body corporate
which is
registered in India and whose principal base of business is in India.
5. Chairman and at least two –thirds of its Directors are Indian citizens.
6. Foreign equity participation up to 49 percent and investment by Non-
Resident
Indians (N.R.I), Overseas Corporate Bodies (OCBs) up to 100% is allowed.
The
representation of the foreign investing institution/entity on the Board
of Directors of
the company shall not exceed one-third of the total.
7. Foreign airlines are not permitted to pick up equity. Foreign financial
institutions and
other entities who seek to hold equity in the domestic air transport
sector shall not
have foreign airlines as their shareholders.
8. As regards safety and security arrangements, the operators must ensure
compliance
with relevant regulatory requirements stipulated respectively by the
Director General
of Civil Aviation (DGCA) and the Bureau of Civil Aviation Security
(BCAS).
9. For green field airports, foreign equity up to 100 percent is allowed
through automatic
approvals. For upgrading present airports, foreign equity up to 74
percent is allowed
through automatic approvals and 100 percent through special permission
(from FIPB).

• Setup costs:

Nowadays, venture capital of $10 million or less is enough to launch an

airline.

1. In order to overcome the shortfall of aircrafts during the peak seasons,

airlines can
utilize an ACMI lease agreement for the extra aircraft. If the airline
has many
 aircrafts, either owned or leased, then they can offer their surplus
aircrafts in their low
season to another airline that is facing peak season.

2
India Ministry of Civil Aviation - http://civilaviation.nic.in
3
India Directorate of Civil Aviation - http://dgca.nic.in,
Bureau of Civil Aviation Security (India) – http://bcasindia.gov.in

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2. An airline company will bear the cost of purchasing an aircraft if it wants

to start or
expand its fleet, leasing allows the cost to be spread across several years.
At the lease
term end, the lease can be renewed or aircraft can be returned, to be
replaced with
more modern aircraft.

• Fuel prices:

Domestic ATF prices have increased by over 160 per cent from the beginning of
2005 till
last year and by over 80 per cent from a year-ago levels. In India, oil
companies do not
import ATF directly; instead they refine it from imported crude oil. With
rising crude oil
prices, imports are becoming expensive day by day and at the same time, the
government
is unable to pass on the full impact of this rise to the consumer. As a result,
the state
owned oil marketing companies (almost 95 per cent of the market is with state
owned
firms) are forced to sell diesel, petrol, kerosene and LPG at way below cost, a
cost they
are trying to somewhat make up by raising the price of ATF, which is under
their control.
As a result prices of ATF in India are much higher than some of the other Asian
countries.

• Resource:

The aviation industry in India suffers a shortfall of pilots. The reasons are:

1. The aspirants can receive Commercial Pilot Licence (CPL) only if they
undertake a
training abroad.
2. The reason being that in India, there is a lack of dedicated flight
Instructors, decade-
old aircrafts and poor quality training offered at a price much higher than
what is
offered by flying schools in USA, Canada and Australia.
3. Indian institutes provide training with the help of their training partners
in the foreign
countries like U.S.A, U.K etc.

Private airlines hire pilots; get expatriates or retired personnel from the Air
Force or PSU
airlines in senior management positions. Airlines can contract employees such
as cabin
crew, ticketing and check-in staff members.

In airline sector, finding appropriate labour-force is very costly. Moreover,

due to the
liberalization of policies by government, foreign and private players often
poach work-
force of competitors which leads to talent-drain and thus losses.
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. Fleet Forecast for the India-Region 2006-2011 shows that
there will
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be approx. 85% growth in the order rate of air carriers [Exhibit 2].
Thus, suppliers are
few and thus in better position to bargain as they always finds customers
for their
aircrafts.

• IndiGo fleet comprise of Airbus-A320 and the switching cost is high due
to the
limited number of suppliers.

• Due to shortage of commercial aircraft pilots in India the supply of

pilots is
concentrated, hence increasing their power.

• There are only four suppliers for ATF (Aviation Turbine Fuel); IOC,
Hindustan
Petroleum Corporation, Bharat Petroleum and ONGC and since their number
is
limited, they possess more power.

• The proof of evidence for high power enjoyed by ATF suppliers lies in the
fact that
the ATF prices constitute 35-40% of the costs in India compared to 20-25%
globally.

• The brand value of suppliers is high due to their less number and results
in higher
bargaining power for them.

• The airlines also face a threat of forward integration since the

suppliers are in close
contact and are familiar with the knowhow of the aviation industry.

• The suppliers are few and thus in better position to bargain as they
always finds
customers for their aircrafts.

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.
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

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• 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
supplier’s 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 SpiceJet followed by GoAir [Exhibit 3]. Below is

brief
description about each of them:

SpiceJet is a low-cost airline based in New Delhi, India. Spice Jet’s mission is to
become
India’s preferred low cost airline, delivering the lowest air fares with the
highest consumer
value, to price sensitive consumers. Its vision is to ensure that flying is no
longer confined to
business travellers, but is affordable for everyone and thus the tagline ‘flying
for everyone’
Spice Jet airways began its operations in May 2005. SpiceJet has chosen a single
aircraft type
fleet which allows for greater efficiency in maintenance, and supports the low-cost
structure.
It has a fleet of 6 Boeing 737-800 in single class configuration with 189 seats.
SpiceJet's new
generation fleet of aircraft is backed by cutting edge technology and
infrastructure to ensure
the highest standards in operating efficiency. Spice Jet currently flies to 11
destinations.4

GoAir Airlines, owned by Wadia Group, is a low-cost budget airline based in Mumbai,
India. It has been showcased as “The People's Airline”. GoAir is looking at
'commoditising
air travel' by offering airline seats at marginally higher train prices to all
cities in India. The
Airline’s theme line is “Experience the Difference” and its objective is to offer
its passengers
a quality consistent, quality assured and time efficient product through affordable
fares.
GoAir's business model has been created on the 'punctuality, affordability and
convenience'
model. Go Air operates four A320 aircraft with a single class, 180-seat
configuration, and
plans to expand its fleet to 33 aircraft in three years.5

Thus, we can summarize from above data that all the three players are trying to
follow cost
leadership strategy by bringing down the ticket rates to the minimum possible
value.
However, it is clear that, to sustain in this cutthroat competition, each player
will have to
come up with different strategies to improve the non price factors [Exhibit 3].
4
http://www.zoomtra.com/Airlines/Spicejet.html
5
http://www.zoomtra.com/Airlines/Go-Air.html

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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:

1. Customers use airline transport as it is convenient and saves travelling time.

So trains
cannot work as a substitute to save time.
2. 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 GoAir. So in this case, threat of substitutes is high as the switching
cost
between low cost carriers is low.

Opportunities

• IndiGo airlines have not ventured into the huge air freight market
which can
contribute a sizeable portion of the revenue. A study by Centre for
Asia Pacific
Aviation or CAPA6, an aviation consulting firm estimates the cargo
services of 3.4
million tonnes per annum.
• According to a research conducted by PhoCus, Indian domestic traffic
will touch 86.1
million by 2010,up from 32.2 million in 20077.The flight density of
IndiGo airlines is
limited in domestic market; hence there is a big scope to increase the
flight frequency
[Exhibit 4].
• The huge untapped international sectors should be explored once IndiGo
has a
considerable presence in the domestic market.
• IndiGo currently does not have too many long haul aircrafts and as per
CAPA study
by 2020, Indian Airports are expected to handle more than 100 million
passengers.
IndiGo airlines should focus on long haul aircrafts both for domestic
and international
sectors.
• The chartered flight services still remain an area not exploited by
Indian aviation
industry and IndiGo airlines can play a major role in tapping the
potential in that
particular market.

6
Centre for Asia Pacific Aviation – www.centreforaviation.com
7
www.phocuswright.com

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Threats

• ATF (Air Turbine Fuel) prices have increased radically since 2005 [Exhibit
5].
• Foreign and private players often poach work-force of competitors.
• Extensive Government Interference can affect the accountability of the
organization.
In aviation industry, government has control over fuel prices, foreign
investments
(e.g. FDI policies), tourism laws, taxes etc. This can greatly affect the
day to day
business in the airline industry.
• Like every other industry, recession has hit aviation industry as well.
People have cut
down on tourism and corporate travels have also been slashed down.
• The shortage of trained pilots, co-pilots and ground staff is severely
limiting the
growth prospects of all the airline companies.
• Barriers to exit in aviation industry are high because of high capital
investment, no
government restrictions and loss of brand image.

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Internal Environment Analysis

Resources, Capabilities and Core Competencies are the key elements of the Internal
Environment. The resources are tangible and intangible.

Tangible resources

• Aircrafts:
The airline currently operates 120 daily flights with a fleet of nineteen brand
new Airbus
A320 aircraft and flies to 17 destinations.

• Human Resources:
1. The human resources are the pilots, crew members and ground staff.
2. No airline can recruit a trainee pilot and directly assign him to fly an
airplane carrying
around 500 passengers. The labour-force has to be trained and then assigned
with
tasks to perform after proper evaluation.

• Fuel:
1. Porter’s five forces model does not cover the importance of complementary
product.
2. ATF is the complementary product for airplane and it constitutes
approximately 35%
of the production costs.

Intangible resources
• Brand Equity/Reputation
IndiGo is the most reputed low cost carrier due to the following reasons:
1. On time arrivals is the key differentiating factor for IndiGo Airlines.
2. IndiGo keeps implementing new and innovative ideas to increase the quality
of
customer service. Recent example is: IndiGo has roving “check-in counters”
where
passengers with only cabin baggage can check-in with an IndiGo official
with a
handheld device, rather than lining up at the check-in counter.
3. It gives the customers the freedom to carry their own eatables and snacks on
board.
4. Compared to the direct competitors, that is, the other low cost carriers
like SpiceJet,
Jetlite, etc. IndiGo offers the lowest airfare [Exhibit 7 & 8].

• Social Capital:
1. IndiGo has amicable relationship with the other organizations that
contribute to the
value addition for the service provided to the customers.
2. IndiGo has engaged many Travel web-portals and regional travel agents with
incentives like booking commissions, etc. There have been no instances of
distress
between IndiGo and its other collaborators, that is, suppliers.

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3. Collaboration with hotels: Mumbai-based hotel chain operator Sarovar

Hotels and
IndiGo Airlines announced a marketing tie-up for frequent travellers. The
highlights
are:
a. The arrangement will allow guests staying at select Sarovar Hotels
across 26
destinations in India to avail a 10 per cent discount on their
next travel
booking with IndiGo.
b. While IndiGo flyers can avail up to 25 per cent discount on
published room
tariff, 10 per cent discount on holiday stay packages and 10 per
cent discount
on restaurant dining at select Sarovar properties8.

Hence IndiGo has a remarkable Social Capital.

• Brand Awareness:
IndiGo is a well known Low Cost Carrier in India. The following points
contribute to the
brand awareness of IndiGo:
1. Advertising using print media like newspapers, billboards, etc.
2. It may not pay for an advertisement in a newspaper, but has been covered
in news for
its low cost strategy implementation.
3. As IndiGo provides better value added services to the customers, Word of
Mouth
promotion also works in its favour.

• Employee Relationship:
Good Employee Relationship is a key factor to sustain competitive advantage.
IndiGo
provides several incentives to its employees. As per the news article
published in The
Hindu Business Line:

“IndiGo officials claimed that they have been seeing a healthy growth in
passenger
numbers and had no plans to defer delivery of any of the 100 Airbus it has
ordered.”

Hence, it is clearly evident from the above statement that IndiGo is

optimistic about its
long term growth. Also, it is planning to expand its employee strength and at
the same
time there is no indication of downsizing the current staff.

Quoted below are some comparisons about the different approaches implemented
by
various airlines at the time of recession stated in the same article:

“At a time when several domestic airlines are looking to prune their staff
strength, the
Delhi-based low cost airline, IndiGo, is on the lookout for more pilots,
cabin attendants,
customer service and airport service agents.”
 “In the recent past, both Kingfisher Airlines and Jet Airways have asked
their staff to
leave. While Jet Airways offered a “voluntary retirement scheme” to more than
300 of its

8
http://www.business-standard.com/india/news/sarovar-hotels-indigo-in-marketing-
tie-up/60537/on

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staff, it was also planning to lay off about 1,900 of its staff. In late
September, Kingfisher
announced that 300 employees had “parted ways” with the company”9.

The above facts show that IndiGo has taken a positive approach while dealing with
its loyal
employees at the time of economic slowdown.

• Four Criteria of Sustainable Competitive Advantage:

Resources| Valuable Rare Costly to Imitate Non

Substitutable

Aircraft Y N N Y
Human Resources Y N N Y
Fuel Y N N Y
Brand Equity Y Y N Y
Social Capital Y N Y Y
Brand awareness Y N N Y
Employee Relationship Y N N Y

9
http://www.thehindubusinessline.com/2008/11/11/stories/2008111151850100.htm

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Value Chain Analysis

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Strengths
• IndiGo has high brand awareness and brand equity.
• Cost leadership: Successful implementation of low cost strategy.
• Highly efficient management that ensures high rate of on- time arrivals.
• Continuous innovation to improve on non price factors.
• Tie-up with hotels.
• Ease of ticket booking for customers.

Weaknesses
• Scope of product differentiation is less.
• Benefits of the innovations implemented by IndiGo to provide better services to
the
customers are short-lived, as these can be easily imitated by the competitors.
• IndiGo is not exploring the untapped domestic air cargo market.

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TOWS
Strengths(S)
Weaknesses(W)

1. IndiGo has high brand 1. Scope

of product
awareness and brand equity.
differentiation is less.
2. Cost leadership: Successful 2. Benefits
of the innovations
implementation of low cost
implemented by IndiGo to
strategy. provide
better services to the
3. Highly efficient management
customers are short-lived, as
that ensures high rate of on- these
can be easily imitated
time arrivals. by the
competitors.
4. Continuous innovation to 3. IndiGo
is not present in
improve on non price factors. domestic
air cargo market.
5. Tie-up with hotels. 4. Not
present in International
6. Ease of ticket booking for market
customers.

Opportunities(O) SO WO

1. Freight market 1. Increase domestic 1. IndiGo can

plan to go
2. Increase in domestic air destinations for flights
international.
traffic 2. Upgrade to long haul aircrafts 2. IndiGo can
expand its services
3. International market as per demand to
freight/cargo.
4. Chartered flight services 3. Diversify
to chartered flight
5. Promotion of regional air services.
connectivity
6. Development of airport
infrastructure

Threats(T) ST WT

1. Rising ATF prices 1. Sign anti poaching 1.

Continuous innovation of
2. Increasing competition agreements with competitors. value
added services.
3. Economic slowdown 2. Effective incentive
4. Poaching programmes to avoid talent
5. Government interference drain.
6. Scarcity of trained pilots 3. Hire well trained pilots from
other countries as well as
retired Air Force personnel.

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Feasible Alternatives
1. Increase domestic operation

There are a number of initiatives taken up by government to encourage

aviation industry,
e.g., promotion of regional air connectivity10, Open Sky policy11 and policy
of Greenfield
airports12. In addition to this, government has also made plans for the
development of
airport infrastructure13. 35 airports have been selected for this purpose, of
these 24 airports
would be taken up for city side development through PPP including maintenance
and
operation of the terminal buildings, cargo operations and real estate
development14.

All these factors indicate towards a favourable environment for growth in the
domestic
aviation sector. Hence it would be a wise option for IndiGo to increase its
domestic
operations. IndiGo must increase the number of destinations and can start
long haul
aircrafts.

2. Extension

Currently, IndiGo is concentrating only in domestic passenger flights.

However, the
freight/cargo market and charted plane service are the areas that can prove
to be good
potential market for IndiGo. As per the reports from an economic survey this
year, it was
stated that domestic cargo showed a growth of 14.55%15. Besides, chartered
flight
services are an untapped market for IndiGo. Thus, IndiGo has a huge
opportunity to
expand in both these arenas.

10
To expand air connectivity on Tier II and Tier III cities and to promote regional
air connectivity a separate
category of permit, Scheduled Air Transport (Regional) Services had been
introduced.
11
The `Open Sky' policy encourages the promotion of Regional Airlines, lower fares
to make aviation
affordable and remove price monopolies in respect of Aviation Turbine Fuel (ATF).
12
The Policy aims to have an approval mechanism for setting up of new airports.
Guidelines for granting
technical approvals by various agencies involved in setting up of an airport would
be provided upfront to
provide clarity, Airport Authority of India – www.airportsindia.org.in

13
Airport infrastructure has been undertaken through the PPP route in major metro
cities like Delhi, Mumbai,
Bangalore and Hyderabad. Modernisation of the Kolkata and Chennai airports is being
undertaken by the AAI.
For the non-metro airports AAI is responsible for the airside development.
14
http://infrastructure.gov.in/pdf/brochure_airports.pdf
15
Press Trust of India / New Delhi July 2, 2009

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Final Recommendation
As inferred from the above two solution analysis, we recommend that IndiGo must
increase
its domestic operations by starting flights connecting to new destinations and long
haul
flights. As the opportunities are vast for this purpose, the other low cost
carriers may also
venture in this area. So using the cost leadership strategy, IndiGo can gain
competitive
advantage over its competitors as the first mover.

Once the above strategy is successful and results in promising revenue growth,
IndiGo can
use extension to freight and chartered services as the next objective for further
expansion.

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APPENDIX A

16
Exhibit 1: Increase in Indian domestic air traffic

Exhibit 2: Expected growth of fleets in India17

16
Sources: Airports Authority of India
17
Source: AS MRO Initiative 2006

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Exhibit 3: Market share of Low Cost Carriers in India in Jan 200918

Exhibit 4: Air Passenger revenue percentage growth19

18
Source:: Indian Civil Aviation Ministry
19
Source: CMIE, PL Research

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Exhibit 5: Rising ATF prices

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APPENDIX B

Exhibit 6: Comparison of air fares

Exhibit 7: Comparison of air fares

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BIBLIOGRAPHY
Websites
1. www.indigoairtickets.com
2. India Ministry of Civil Aviation - http://civilaviation.nic.in
3. India Directorate of Civil Aviation - http://dgca.nic.in/
4. Airport Authority of India - www.airportsindia.org.in/
5. Bureau of Civil Aviation Security (India) – http://bcasindia.gov.in/
6. Centre for Asia Pacific Aviation – www.centreforaviation.com
7. www.cleartrip.com
8. www.infrstructure.gov.in
9. www.interglobe.com
10. www.civilaviation.nic.in
11. www.business-standard.com
12. www.thehindubusinessline.com

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