RESEARCH PROJECT 2

ON

“INDIGO AIRLINES”

REPORT SUBMITTED TO

ITM BUSINESS SCHOOL, WARANGAL

SUBMITTED BY:

ERUKALA SATHISH

(ROLL NO: 38)

UNDER THE GUIDANCE OF

PROF.G.RAVINDER

INSTITUTE OF TECHNOLOGY AND MANAGEMENT

(RECOGNISED BY AICTE)
 INTRODUCTION

History and Evaluation of Indigo Airlines:

Rahul Bhatia of InterGlobe Enterprises and Rakesh Gangwal, a United States-based

expatriate Indian founded the airline as a private company in 2006. It took delivery of its first
aircraft in July 2006 and commenced operations a month later. The airline became the largest
Indian carrier in passenger market share in 2012. The company went public in November
2015.

. Introduction IndiGo is an Indian budget airline company headquartered at Gurgaon, India.

It is the fastest growing and also the largest airline in India. Indigo airlines aims to become
the number one leader in the low cost airline industry of India, offering the best service and
ensuring highest standards of quality at low cost to the customer. To be India's largest and
fastest growing airline through three things: affordable fares, on-time performance and
hassle-free travel experience. 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 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.

IndiGo is India’s largest passenger airline with a market share of 43% as of November, 2018.
We primarily operate in India’s domestic air travel market as a low-cost carrier with focus on
our three pillars – offering low fares, being on-time and delivering a courteous and hassle-
free experience. IndiGo has become synonymous with being on-time.
Since our inception in August 2006, we have grown from a carrier with one plane to a fleet
of 209 aircraft today. A uniform fleet for each type of operation, high operational reliability
and an award winning service make us one of the most reliable airlines in the world. We
currently operate flights to 68 destinations – 52 domestic and 16 international.

In August 2015, IndiGo placed an order of 250 Airbus A320neo aircraft worth $27 billion,
making it the largest single order ever in Airbus history. IndiGo announced a ₹32 billion
(US$450 million) initial public offering on 19 October 2015, which opened on 27 October
2015.

SALES GROWTH HISTORY OF INDIGO AIRLINES:

MARKETSHARE AND COMPETITOTS MARKET SHARE:

Low cost Airline Indigo has consistently performed well and consistently has higher
passenger traffic than other airlines. Indigo flew more passengers than even Jet
combined (Jet Lite and Jet Airways). Air India has also done quite well, but it is primarily
due to the fact that most of the Government officials and Bureaucrats have been mandated to
travel by Air India only, due to which they register high number of passengers, even though
their ticket rates are comparatively higher.

Low-cost carrier IndiGo’s market share rose to its highest ever in September on capacity
addition. Market share of the country’s largest airline, operated by InterGlobe Aviation Ltd.,
rose to 43.2 percent last month from 41.9 percent in August, according to data released by
the Directorate General of Civil Aviation. That compares with listed peers Spice Jet Ltd. and
Jet Airways (India) Ltd.’s share

Domestic Aviation Market Share

Festive season demand, higher capacity addition and lower fares boosted the airline
passenger traffic in India, the world’s fastest-growing aviation market. The number of
passengers rose 19 percent on a yearly basis to nearly 1.14 crore in September, the DGCA
data showed. The growth in the aviation market was primarily led by IndiGo. The budget
carrier’s passenger growth stood at 34 percent—the highest in 20 months. Passenger growth
for IndiGo’s peers, however, remained lower for at least five straight quarters.

 Air India’s passenger traffic growth was 4 percent—the lowest in 14 months.

 SpiceJet’s passenger growth of 3.3 percent was the lowest in 35 months.
 Jet Airways’ passenger growth increased to 9 percent in September.

Yet, IndiGo and SpiceJet, among other airlines, failed to utilise capacity to the fullest. A
measure of capacity utilization, passenger load factor for IndiGo declined 250 basis   points
over the last year to 82.7 percent in September. SpiceJet’s passenger load factor fell for the
fourth straight month to 93.2 percent. However, the airline managed to report capacity
utilisation at more than 90 percent for 41 months in a row.
Organizational Structure of Indigo Airlines:

BCG Matrix in the Marketing strategy of Indigo Airlines:

No-frill segment with no meal and no entertainment options are stars in BCG matrix as due
to affordable & low-cost option it has high demand in the market. However, because of the
options available, competition is high as well.

Its premium services like Indigo Cargo, Indigo Experience etc., are question mark because
customers find MNC carriers with international presence services more attractive and it is
value for money for them.

SWOT ANALYSIS OF INDIGO AIRLINES:

Below is the Strengths, Weaknesses, and Opportunities & Threats (SWOT) Analysis of
Indigo Airlines:

Strengths:

1. Indigo Airlines has strong backing promoters and is one of the largest low cost carriers in
India
2. Only LCC to make consistent profits
3. Indigo Airlines has one of the major airlines in India in terms of market share

4. Indigo Airlines has entered international markets has boosted its brand value

5. Good advertising and marketing strategies have increased its brand recall

6. Excellent offerings and on-board services provided by Indigo Airlines

7. More than 10000+ employees are with Indigo serving more than 40 million passengers

Weakness:

1. Indigo airlines has limited market share growth due to intense competition

2. Still has to establish itself on international destinations

Opportunities:

1. Opening up of International routes can boost business of Indigo

2.Largest market share among LCCs in Indian Market
3. Middle class taking to the skies can be a huge opportunity for Indigo airlines

Threats:

1. Plenty of new LCCs to compete with for Indigo airlines

2. Rising Labor costs and changing govt policies
3. Rising Fuel Costs can affect business margins for Indigo
STRENGTH AND WEAKNESS ON ITS VALUE CHAIN:

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 the competitors can easily imitate these.
 IndiGo is not exploring the untapped domestic air cargo market
Business Model of Indigo Airlines:

The picture shows the business model of Indigo Airlines and how the low cost structure
model is contributing to high profits. Indigo orders its aircraft in bulk and one of the most
recent purchases was an order of 180 airplanes (150 A320neos and 30 A320s). Such huge
orders give them a high bargaining power because airplane manufacturers would not risk
loosing such long-term customers. Having a standardized fleet would not only reduce cost
because of low maintenance and carrying costs of spares. However, a standardized fleet
increases IndiGo’s dependency on aircraft manufacturer Airbus. Though bulk orders gives
higher bargaining power, a standardized fleet nullifies it to a certain extent.

Indigo maintains fleet with an average age of 4.5 years, which would further reduce to 4
years in the future with the induction of newer aircraft. Younger fleet offer higher
engineering efficiency and breakdown less often, helping the planes run on time. Moreover,
passengers prefer newer jets as they are equipped with better facilities. Sale and leaseback is
a process where a lessor buys the aircraft from the airline and lease it back to the aircraft.
The airlines firms obviously sell the aircrafts at a premium and this allows the firms to invest
the capital elsewhere. Indigo has been one of the most active users of Sale and leaseback
financing. So it need not include cost of acquiring aircraft in its balance sheet, rather only
incurs leasing costs.

Indigo maintains a no frills policy and hence carries lesser food and cutlery, reducing the
weight of the aircraft. It has built a reputation of being an on time airline service provider
and hence a no frills policy does not affect the willingness to pay. This reduces cost and also
creates additional revenue. The lower variable costs lead to lower prices, which further lead
to higher market share and higher revenue.

Generic Strategy:

In the words of Rakesh Gangwal, Indigo is a ‘Strict low cost carrier’. So, across its value
chain activities, Indigo looks to cut costs wherever possible, without compromising on the
bare minimum services that has to be provided to its customers. Indigo has modelled its
business based on Ryanair and southwest airlines, some of the low cost carriers from the
western world, which have been performing impressively. Their primary goal is to serve the
routes where demand is high and profitability is high. They also operate on a hub and spoke
model enabling them to fly to different destinations across India. This leads to a high
utilization rates, which helps them, get higher profits.

Some of the other choices made by Indigo , that has already been explained in the value
chain analysis such as Young fleet, Standardized fleet, sale and lease back, high turnaround
time, Only economy class are some of the things that helps Indigo cut majority of its costs
and gain a competitive advantage vis a vis the other airlines in India. It can be deduced that
Indigo fits into ‘Cost Leader’ in Porter’s Strategic Positioning Model framework.
Competitive Dynamics:

AirAsia, relatively a new entrant in Indian Airlines industry already has its competition to
respond in all out price wars. The incumbent market leader, Indigo is not silent an observer
and is responding tooth and nail it to the aggressive strategies followed by AirAsia. Even Mr.
Fernandes, AirAsia CEO has acknowledged that Indigo is making life difficult for them.
Indigo has countered every move made by AirAsia in India, be it by cutting fares or adding
more flights on existing routes where AirAsia flew its own. On each new route started by
AirAsia, Indigo has followed suit, setting off a price war. Indigo also launched several flights
from the cities AirAsia was aiming at, looking to thwart the AirAsia’s efforts to tap niche
routes. When AirAsia announced a non-stop flight between Bengaluru and Chandigarh,
Indigo took off on the route before AirAsia could. Indigo has taken competition head-on, not
making it easy for new entrants.

Last December, AirAsia launched a direct flight between two cities (Pune to Jaipur), adding
5,000 seats per month on the route. The Indian carrier also offered ‘all-inclusive, one-way’
fare from as low as 699 for flights from Bengaluru to Chennai, Kochi, Goa, Jaipur and
Chandigarh and vice versa. On the Bengaluru to Kochi route, Indigo had to cut its fares,
which were around 4,000. After AirAsia started a week-long sale offering promotional
tickets priced as low as 380 (all-inclusive) on travel dates between June 10, 2015, and
January 17, 2016, Indigo announced special fares starting as low as 1,647 (all-inclusive).
The fare quoted by AirAsia was less than half the price of AC bus tickets that run on the
routes. Similarly, Indigo announced all-inclusive fares starting 1,499 to take on rival SpiceJet
earlier this year, 100 lower than the latter is 1,599 offer. In January this year, Vistara debuted
Delhi-Ahmedabad and Mumbai-Ahmedabad routes. Soon, Indigo added a fifth daily flight
between Delhi and Ahmedabad and a sixth daily service between Mumbai and Ahmedabad.
Indigo does not initiate fare wars, but tend to match the fares offered. It has also been more
selective on a case-to-case basis rather than offering blanket discounts. Indigo looks at
discounts from the point of view of capacity availability. If it has a high load factor, it cannot
match the offers. Typically, Indigo matches promotions of this kind on weaker routes.

Competitive advantage in the Marketing strategy of Indigo Airlines:

Indigo is a no-frills carrier; a strategy which is helping the airline in keeping the cost of
operation low and passing on the benefits to end customers.

Operating to limited number of destinations has helped the carrier to remain focused and this
is one the competitive advantage that Indigo have over peer companies.

Low operational overhead, Indigo is using AirbusA320-200 aircraft in its fleet and recently
they had received the delivery of A320neo aircrafts to continue making air transportation
affordable to the customers.

Conclusion:

Some of the factors that made Indigo profitable was discussed. It is difficult for competitors
to replicate Indigo’s model, which is why Indigo has had a sustained profitability over the
years. However, even if the competitors are able to replicate a few value adding activities of
Indigo Airlines, they can be saved from the blushes. A very good example can be spice jet,
which recently turned profitable, thanks to some of the best processes it adopted from
successful airlines. Airline industry is poised to grow at a faster pace with increasing
connectivity and disposable incomes and a healthy competition among airlines is imperative
for the overall betterment of the industry.