COMPETITIVE POSITION : INDIGO AIRLINES

COMPETITIVE POSITION : INDIGO AIRLINES

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  ADVANCED COMPETITIVE POSITIONASSIGNMENT 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,
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  he left theUS 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.
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  Competitive life CycleAnalysis 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
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  8. During thelast 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.
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  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 I N T . T R A D E
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  and other townsof 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. IN DU ST RY AT TR AC TIV EN ESS
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  Stakeholder analysis 15. IndigoAirlines 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.
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  Exhibit 1 Stake HolderMap 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.
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  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.
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  References 1. http://centreforaviation.com 2. IndiGoschedules, Indigo official website. 3. https://www.glassdoor.co.in