Strategic Management Indigo Airlines
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 eliable 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. 3 Introduction India is one of the fastest growing aviation industries in the world.
Because of the ntroduction 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 n 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 layers 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 viation 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 ew 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. http://www. interglobe. com/ig-aviation. aspx 4 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 n 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.
5 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 perations, 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 nas the highest percentage ot people in age group of 20-50 among its 50 million strong middle class, with high earning potential. .
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.