Indian Airline Industry - Group1
Indian Airline Industry - Group1
Indian Airline Industry - Group1
Shankho Bag
Sushrut Helwatkar
Vignesh K.R
19/225
19/234
19/204
Index
Stage 1: Industry analysis
History of firms
Profile of the firms
SWOT analysis , RBV analysis
Core competencies
PAGE 1
prices have declined by nearly 57% during the period March 14 to present, which has provided
respite for airline companies in India. With fuel cost accounting for about 40-50% of operating
expenditure for Indian airlines, the lower fuel price has resulted in ~12-13% reduction in operating
cost. Considering the competitive intensity though, the airlines are partly passing on the benefit of
reduced fuel prices to customers in order to attract passenger traffic. In addition to declining fuel
prices, efficiency gains through process improvements, route rationalisation and careful balancing
of capacity with demand are other factors which have supported the improved operating
performance of the Indian airlines.
Although airlines continued to report weak financial performance in FY15, there has been a
reduction of 35-40% in losses (at ~Rs. 75-85 billion) as compared to that in FY14. It is expected
domestic airlines will report improved performance in FY16 on account of favourable jet fuel
pricing environment and the sector is hopeful that the new aviation policy will address all issues
obstructing growth in due course of time.
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Market description
Global market size:
The revenues of the global
industry has doubled from
US$369 billion in 2004 to a
2020.
Demand for passenger and freight aircraft is expected to increase to 32,600 by 2034
Yearly RPK is projected to grow at 5.8% from 2015-2034 in emerging economies like
India, China, Middle East, Europe, Africa. For developed economies, expected RPK
growth is 3.8%.
No. of aviation mega cities
expected to grow from 47 in 2014
to 99 by 2034
Asia Pacific is expected to lead in
world traffic by 2034. At present,
the number of Asian airlines has
increased to 230, nearly 27% of
the world commercial aircraft
fleet.
PAGE 4
PAGE 5
The Indian civil aviation industry is amongst the top 10 in the world with a size of around
USD 16 billion.
Airlines are expected to operate about 800 aircraft's by 2020 as compared to 450 presently
Indias demand for aircraft would constitute 4.3% of global volumes
Domestic and international passenger traffic expected to grow at annual average rate of
12% and 8% in next five years (estimated 163 million passengers in 2013 and 60 million
PRODUCTS
Service type:
Aircraft type:
Single aisle
Twin aisle
Very large aircraft
Cargo/Freight aircrafts:
Employees are the face of the airlines and by all means, the aviation industry is highly
labor intensive. There are huge requirements of skilled pilots and technicians and other
workforce. It is expected to create an employment for around 40 lakh people by 2035, 8-10
lakh personnel will be directly employed by airport, airlines, cargo, maintenance repair and
overhaul facility and ground handling and another three million indirect jobs will be
created. Thus, it is essential that internal customer satisfaction is high so that the end users
can have a delightful experience and the airline can rise and fly.
Airlines consistently rank low in customer satisfaction, as per a customer satisfaction survey by
IBM institute for business Valueanalysis.
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PAGE 8
Rivalry: High
No of service providers in this industry is high. Players in Indian aviation industry can be
classified into:
o Public players- Air India
o Private players- Indigo, Spice Jet, Jet Airways etc.
o Start-ups- FLYeasy, Air Pegasus, Vistara
Intense price competition amongst players, thus eroding one anothers market share by
reducing number of passengers carried.
Industry trend:
share of 36.69%
Spicejets financial troubles
which became public in late
2014 eroded passenger
confidence and market share.
PAGE 9
Existing airlines benefit from economies of scale, rights on airport slots, hence can expand
easily than new players.
Capital requirement is high and can deter new airlines from entering:
o personnel cost:15% of total costs; engineering and maintenance cost:12%
o Cost of buying or leasing aircrafts is very high ~10-14% of total cost
o Various taxes levied by state and airport authority like landing charges, parking
charges, route navigation charges, terminal navigation landing charges are very
Industry trend:
New players like Air Asia, Air Costa, Air Pegasus, Trujet have very negligible market
shares and operate in huge
losses.
Consolidation resulting from
mergers and acquisitions or
Joints ventures reduce
competition and enhance
operational efficiency and
market shares. Ex- Vistara, joint
venture between Tata sons and
Singapore airlines, Jet Sahara
merger
PAGE 11
Internet makes it easier to compare price and time schedules and hence, switching costs
between airlines is low.
Airlines have limited options to differentiate themselves from rivals
With airlines competing for the same passenger group, the concentration of power is high
with travelers. Companies have to increase their operational efficiency or customer service
to differentiate
Industry
PAGE 12
industry.
Outsourcing: Airlines are opening new sustainable revenue streams by outsourcing core
services like accounting, cargo operations, customer relation management, ticketing or check-
in activities.
4. Regional connectivity scheme: Thrust on enhancing regional connectivity to improve regional
penetration through incentivizing airlines and developing no-frills airports
5. The 5/20 Rule: There have been enough indications from the ministry in favour of abolishing
this law. However, the DNCAP and the MoCA does not take any stand on this policy presently.
Opinions of various stakeholders are awaited and the debate is mainly around whether the
existing rule should be replaced by Domestic Flying credit (DFC)mechanism, key factors of
which are as listed below:
Multiplication factor for available seat kilometers (ASKMs) deployed on various category
PAGE 13
Variety of fleet
Geographic coverage
Prices charged
Service levels
Ownership models
Out of these the Prices charged and Service levels are used for strategic mapping due to their
importance in the decision making behaviour of the customers.
Prices charged- Customers are highly price sensitive and have a tendency to switch
from one airline to another based on low fares. Hence, price plays a very crucial role in
PAGE 14
Hig
Vistara
Air India
Prices Charged
Go-Air
Jet
Airways
Indigo
Spicejet
Low
w
Low
Service Level
High
PAGE 15
Indigo Airlines
Spice Jet
Air India
Jet Airways
Go Air
6. Vistara
INDIGO AIRLINES
IndiGo was started in 2005 and is operating as a private low-cost airline based in Gurgaon. It was
set up by Rahul Bhatia and Rakesh Gangwal. Rahul Bhatias InterGlobe Enterprises holds 51.12%
stake in IndiGo and 48% by Caelum Investments. In June 2005, IndiGo, to begin its operations,
placed an order for 100 Airbus A320-200 aircraft. The airline completed its initial order ahead of
schedule on November 2014. In July 2006, IndiGo received its first Airbus A320-200 aircraft and
commenced operations on August 2006, with a service from New Delhi to Imphal via Guwahati.
IndiGo has a stated a three-point corporate mantra: Offer fares that are always low, flights that are
on time, and a courteous, hassle-free travel experience. In order to keep operational costs down,
IndiGo buys only one type of aircraft. Being a low-cost carrier, IndiGo offers only Economy Class
seating and does not provide in-flight entertainment or complimentary meals. As of September
2015, IndiGo with a market share of 36.5% became the largest airline in India in terms of
passengers flown. Indigo has been making profits since 2009 despite its rivals Spicejet and Jet
suffering losses. IndiGo operates more than 647 daily flights to 39 destinations, 34 in India and 5
international
PAGE 16
SPICEJET:
SpiceJet was launched in May, 2005, and is being promoted by Ajay Singh and the Kansagra
family. The goal of the airline is to compete with the Indian Railways air conditioned coaches and,
obviously, offer a better deal to its passengers. By 2008, SpiceJet became Indias second-largest
low-cost airline in terms of market share. The airline flies Boeing 737-800 and 900ERs and
Bombardier Dash 8 Q400s. Spice Jet names all its aircraft with a name of Indian Spices like Haldi,
Dhaniya, Sauf, Fenugreek etc. After operating domestically for 5 years, it started international
operations in October, 2010. In early 2012, SpiceJet suffered losses as fuel prices were reported to
have increased by as high as 90%. The money spent on fuel exceeded well over 50%, spiraling the
airline into losses. In December 2014, Spicejet faced severe cash-crunch with DGCA putting the
carrier on cash-and-carry mode and oil companies refusing to refuel its planes. But by the end of
2015 SpiceJet's operations experienced a significant upswing with 93% of available seats on
flights being filled and only 0.13% of scheduled flights canceled each month. SpiceJet was
profitable in three consecutive quarters, in contrast to previous five quarters when they lost money.
AIR INDIA
Air India was founded by JRD Tata in 1932 when it won a contract to carry mail for Imperial
Airways. Initial service included daily airmail services. It became a public limited company on 29th
July 1946. The Government of India acquired 49% of the airline in 1948. In 1953, Indian
Government acquired majority stake in the company and established Air India International
Limited. The domestic operations were transferred to Indian Airlines in a restructuring in 1954. In
1962 it became the Worlds first all Jet airline.
During the early 2000-01, attempts were made to privatize Air India. In 2004, a wholly owned low
cost subsidiary called Air-India Express was launched. In 2007, Air India and Indian Airlines were
remerged under Air India Limited. It was invited during this period to be a part of Star Alliance,
which was later rescinded in 2011 due to failure to meet minimum standards for membership.
The airline posted its first positive EBITDA in 2013 after almost 6 years of losses. It split its
business into two subsidiaries Air India Engineering Services and Air India Transport Services. It
finally became a member of the Star Alliance in 2014.
As of 2015, Air India is the 3rd largest carrier inn India.
PAGE 17
JET AIRWAYS
Jet Airways was incorporated as an air taxi operator on 1 April 1992 to compete against the stateowned Indian Airlines. It began international operations in March 2004. The company is listed on
the Bombay Stock Exchange, but 80% of its stock is controlled by Naresh Goyal, the owner. On
2007 Jet Airways bought Air Sahara, which was renamed JetLite, and marketed between a lowcost carrier and a full service airline. In October 2008, Jet Airways laid off 1,900 of its employees,
resulting in the largest lay-off in the history of Indian aviation. On May 2009 Jet Airways launched
its low-cost brand, Jet Konnect. For the third quarter of 2010, Jet Airways had a market share of
22.6%in terms of passengers carried, thus making it a market leader in India. Jet Airways and
SpiceJet initiated the price war in the Indian airline industry, followed by IndiGo and GoAir. On
December 2014, Jet Konnect was fully merged with Jet Airways with complementary meal
services to take on the competition from the new airline Vistara. Jet Airways discontinuation of its
low fare arm JetKonnect and JetLite made it the third full service airline in India besides Air
India and Vistara in 2014.
GOAIR
GoAir is a low cost carrier that commenced its operations in 2005. The company is wholly owned
by the Wadia group. It made a profit of a little less than Rs.100 crore in the fiscal year 2014, when
most of other airlines had reported losses. It was the fifth largest airline in India by market share as
of 2014..
GoAir has been maintaining an average load factor of 76% since 2007. But the companys growth
has been slow as compared to its competitors like Indigo and SpiceJet with respect to market size,
fleet size, and destinations served as of 2013. However, the company defines this as a strategy to
meet competition and maintain profitability rather than capturing market share and increasing fleet
size. Since inception, it focused on flexibility. During economic slowdown, it chose to shut down
its non-operating routes and fly only on the busier routes like Delhi-Mumbai. However,
government rules require domestic airlines to fly a certain percentage of its flights to smaller towns
with poor connectivity. Alternatively, they may buy seats from other operators providing such
services. GoAir chose to buy seats from regional airlines in north India in order to comply with the
rule and stopped flying on the non-profitable routes.
PAGE 18
VISTARA
Vistara was founded as a joint venture (JV) between Tata Sons and Singapore Airlines (SIA) in
2013. This was Tatas third attempt at starting an airline, first one being Air India which was
nationalized in 1946 and the second attempt being an unsuccessful one in mid 1990s to form a
joint venture with Singapore Airlines with the government denying regulatory approval. However,
the duo were successful this time around as India opened up its airline sector to 49% FDI. Tata SIA
Airlines Limited (TSAL) was formed with Tata Sons owning 51% of the stake and SIA owning the
remaining 49%. It has started as a premium full-service airline targeting the high-end business
travellers demands and its only the third full-service airline after Air India and Jet Airways.
After the very first month of its operation, Vistara achieved a very high On-Time Performance
(OTP) records of 90% which was highest among Indias domestic careers. Within seven months of
operation, it had carried half a million passengers.
PAGE 19
Fig: Value
Chain of
Airline
Industry
PAGE 20
INDIGO
PAGE 21
VISTARA
JET AIRWAYS
PAGE 22
SPICE JET
AIR INDIA
PAGE 23
GOAIR
PAGE 24
Airline
Indigo
Vistara
Jet
Airways
Spicejet
Resource
Valuable?
Rare?
Costly to
Imitate?
Organized
Properly?
Competitive
Implications
Turnaround
time
Yes
Yes
Yes
Yes
Sustained Advantage
On-time
performanc
e
Yes
Yes
Yes
Yes
Sustained advantage
Crew
hospitality
Yes
No
On-time
performanc
e
Yes
Yes
Yes
Customer
service
Yes
Yes
No
In-flight
services
Yes
Yes
Yes
No
Sustained advantage
Brand
reputation
Yes
Yes
Yes
Yes
Sustained advantage
Passenger
load factor
Yes
Yes
No
Strong
regional
connectivity
Yes
No
Information
systems
Yes
Yes
Yes
Yes
Sustained advantage
R&M
expertise
Yes
Yes
Yes
Yes
Sustained advantage
Operational
flexibility
Yes
No
Parity
Yes
Sustained Advantage
Temporary advantage
Temporary advantage
Parity
Air India
Go Air
Parity
PAGE 25
PAGE 26
aircrafts for price discounts and standardization of R&M procedures. Here full-cost carriers like Jet
Airways and Air India have a competitive advantage as their larger fleet size of varied aircrafts
allows them to expand and adapt quickly to changing industry dynamics. Smaller fleet size can
lead to quick expansion problems. Hence it can be considered as a weakness for operators like
Spicejet, Vistara and Go Air. However they can overcome this weakness by forming a strong leasebuying policy and consolidating their fleet in coming years.
2. LOAD FACTOR: Load factor is the prime indicator of the operational profitability of an airline.
It basically means the number of seats occupied in a plane w.r.t. the total plane capacity. Spicejet is
the market leader here with load factor more than 90% throughout 2015. It basically depends how
a company chooses its operational routes. As and when oil prices again shoot up, load factor will
become a deciding factor in keeping the airline afloat amidst paper-thin margins in LCC
operations. Vistara and Air India need to immensely improve this parameter for sustainable profits.
3. CUSTOMER SATISFACTION: The quality of customer service offered by an airline can be
judged from the number of the quality of customer service offered by an airline can be judged
from the number of registered complaints filed against an airline in a particular year. Higher
customer complaints lead to increased customer dissatisfaction and a potential switch away from
the airline. Spicejet faced the wrath of high customer complaints during Dec 2014 when it had to
cancel all its flights owing to cash crunch situation. It also negatively impacts the firms market
valuation. Indigo and Jet Airways too have faced customer dissatisfaction issues but it provides
them an opportunity to improve and capture the market segment that is being lost by Spicejet and
Go Air due to continuous poor service. Vistara on the other hand has proved to be the most
promising firm on this parameter which is increasingly becoming its core competency.
4. PUNCTUALITY On time arrival and departures as well as low turn-around times are essential
for the profitability as well as popularity of any airline. The Airlines employ various strategies to
ensure punctuality, including inflight cleaning by cabin crew, collection of waste before landing,
baggage handling etc.
PAGE 27
their operations and make higher profits. The airlines which have only domestic services have this
opportunity to expand. Go-air and Vistara have not extended their services to international
destinations yet. Hence, in the future they can expand. Other airlines have entered this space, but
they still have the opportunity to expand by making major hubs online.
6. R&M EXPERTISE this denotes the level of expertise and services in the Repair and
Maintenance of the aircrafts. It also includes various engineering services for training, testing and
development. Air India offers a variety of maintenance services like line maintenance, base
maintenance, Engine and Auxiliary power unit overhauling to name a few. It also provides
engineering services like training, asset management, project management and quality assurance. It
also gives specialized testing services like non-destructive testing, aircraft weighing, proof load
tests etc.
7. RISING LABOUR COSTS AND CHANGING GOVERNMENT POLICIES The labour used in
airline industry can be categorized into two categories Skilled and Unskilled.
Skilled staff there is a small pool of talent, from which the industry has to pick candidates from.
Due to the imbalance of demand and supply, the cost of the skilled labor is high. These include
pilots, air traffic controllers Engineers etc. They are also protected by unions.
Unskilled staff is high in availability but is protected by the unions and hence the negotiating
power is high. This leads to higher costs in terms of unskilled labour.
PAGE 28
PARAMETERS
STRENGTH
WEAKNESS
Fleet size
Indigo
Spice Jet, Go
Air, Vistara
Load factor
Spice jet
Vistara, Air
India
Customer satisfaction
Vistara
Punctuality
Vistara, Indigo
Indigo, Jet
Airways, Air
India, Spice
Jet
Network presence
International
connectivity
R&M expertise
Rising Labour costs
and changing govt
policies
Investment in R&D,
Information systems
OPPORTUNITIE
S
Jet
Airways,
Air India
Indigo, Jet
Airways
THREAT
SpiceJet, Air
India
Vistara, GoAir
Air India
Indigo, Jet Airways,
Air India, Spice Jet,
Vistara, GoAir
Spice jet, Air
India
Indigo
PAGE 29
Jet Airways:
Air India
SpiceJet:
GoAir:
Flexibility in operations
Well timed expansion
VISTARA:
PAGE 30
COMPARATIVE ANALYSIS
PAGE 31
SPICEJET
Primary Activities
Activity
Inbound
Logistics
Analysis
helped the Company to get the best rates on goods and services received
Efforts to bring the cost of financing down significantly by way of efficient working
15 from Rs.32,527 million in Financial Year 2013-14. This decrease is due to decrease in
consumption of aviation turbine fuel and average price decrease
Conclusion: Renewed effort by the management to cut-down on inbound logistics cost by
virtue of improving supplier relations, stable cash-flows etc
deployment of network
Considerable improvement in On-time performance with a figure of 85.1% for
September,2015
Spicejet leads Indian carriers with 2.26 complaints per 10,000 passengers carried in 201
Operations
Several near-misses were also reported last year which put a question-mark over the safe
of passengers in a SpiceJet aircraft.
Conclusion: Operational efficiency is the biggest factor in the complete turn-around of
SpiceJets fortunes in the last one year. But at the same time there is urgent need to look into
the safety standards followed in SpiceJet
Outbound
Logistics
Unlike its peers SpiceJet has used a dual-fleet strategy by using a combination of Boeing
737-800s & 900s for medium-haul flights, alongside Bombardier Q400s for short-haul
flights.
This dual strategy has helped SpiceJet in capturing market share in smaller cities where
flies its 78-seater Bombardier Q400s which are considered to be the most technologicall
advanced turboprop airliner
PAGE 32
Conclusion: Focus on cost-effective utilization of delivery fleet and also ensuring market
capture in smaller cities
SpiceJets mission is to become Indias preferred low-cost airline, delivering the lowest
fares with the highest consumer value, to price sensitive consumers. They aim to fulfill
minutes from airport check-in closure of the original flight or a flight cancellation by the
Marketing &
Sales
airline.
SpiceClub The Red Hot Rewards card that lets you make cashless transactions within
SpiceJet ecosystem. One can purchase meals, merchandise, add-on services using the
SpiceClub card.
Innovative pricing like every 99th online ticket free, 10 lakh seats for Rs2013 etc to attra
price-conscious customers
Conclusion: SpiceJet has successfully managed its marketing campaigns which is also
evident from its industry-leading PLF figures
Services
Bag out first facility allows passengers to get their bags out first on priority basis by ju
SpiceJets hospitality
Priority check-in option at major airports across the country for a hassle-free check-in
experience
Carry-more onboard option gives travelers the option to carry more cabin luggage with
nominal charge of Rs 300/kg
Conclusion: SpiceJet is trying to cater to the semi-premium customers who wish to avail bet
facilities at nominal prices.
Support Activities
Activity
Analysis
PAGE 33
SpiceJet is a public listed company with market capitalization of about Rs 40 billion and
Firm
Infrastructure
reduced to 32 aircraft from a level of 56 aircraft by the end of financial year 2014-15
Generated net profits worth Rs 238 crore in Q3 2015-16 by taking advantage of low fue
prices and efficient fleet utilization
Conclusion: The firms financials are in good shape currently but better preventive measures
required to avert cash-crunch situations like the one in Dec,2014
Human
Resource
Management
who have been part of the organization are a member in the alumni group
Recently gave a 20-25% salary hike to its Bombardier Q-400 fleet pilots, thereby bringin
them at par with the Boeing pilots. This move was made to arrest the increased migratio
of such pilots to the cash-rich gulf airlines
Technology
Development
SpiceJet launched its Mobile app last year which provides following features:
Flight Booking
Manage your booking
Pre-book spice add-ons
Check flight status
Deals
PAGE 34
In March 2014, Spice jet signed a $4.4 billion deal with Boeing for procurement of 42 7
8 MAX aircraft
SpiceJet wet-leased three planes from TVS, a firm-based out of Czech Republic. In wet
lease, besides aircraft, pilots and crew are included whereas there is only aircraft in dry
Procurement
lease. This deal caused several on-time performance issues as the turnaround time of the
Czech firm was 45 minutes compared to 25 minutes for SpiceJet
Conclusion: Need for more sound procurement policies to avoid operational issues, and for
reducing procurement costs
From the Value Chain Analysis performed above, we can conclude that the generic strategy of
SpiceJet is OVERALL COST LEADERSHIP
customers
Focus on metrics like Passenger Load Factor and On-time performance to reduce costs and
Frequent safety incidents damaging airlines reputation: Airlineratings.com, the worlds only
safety and product rating website rated SpiceJet 4/7 in its airline safety ratings. All the other
airlines analyzed for this project had safety ratings of 6 or more out of 7. This shows that there is a
significant need for improvement in safety standards of SpiceJet for it to compete with the likes of
Indigo and Jet. The following incidents corroborate our analysis of the lack of safety standards in
SpiceJet:
PAGE 35
On 29 July 2013, SG 3291 a Spice jet bombardier Q-400 carrying 49 passengers from Chennai
to Tuticorin had a tail strike while landing on the short runway triggering panic among
passengers.
On 3 September 2013, SG 3291, a Spice Jet Bombardier Q400 from Chennai to Tuticorin landed
and the engine started smoking due to an oil spillage.
PAGE 36
GoAir
Identification of generic strategy using Value chain analysis:
GoAir started its operation in 2005 and since then has positioned itself as a no-frill carrier. It has
opted to cut costs to a minimum and pass their savings on to customers in lower prices. This helps
them grab market share, maintain their profitability and ensure their planes are as full as possible,
further driving down cost.
The airline targets (i) the middle class population, travelling for leisure or work and (ii) small
and medium enterprises in the corporate sector.
It serves the common middle class population by its regular low cost carrier services. For the
corporate sector, GoAir has launched a business class product called GoBusiness and sells only
eight seats in the two front rows of its Airbus A320, keeping the middle seats vacant.
Primary Activities
Activity
Inbound
Logistics
Analysis
Planned and structured strategy for expansion: GoAir expects to receive 72 Airbus
A320 neo by 2020, at the rate of 15 aircraft each year
GoAir focusses exclusively on improving its fleet utilisation, thus maximizing number
passengers per flight and hence gaining more revenues and reducing overall cost of flyin
GoAir's aircraft utilisation -number of hours one aircraft flies in a day - is about 13 hour
Operations
Outbound
Logistics
hedging
GoAir flies to 22 destinations and 44 cities with 144 daily flights and approx. 975 weekl
flights.
It operates only on domestic routes
Its major hubs are Chhatrapati Shivaji Iternational Airport, Mumbai and Indira Gandhi
Marketing &
Sales
evident from the low/average fare prices it keeps and its strategy to expand from tier2 an
Services
tier3 cities. It is also the first airline to provide direct connect on remote routes like
Mumbai-Leh, Bangalore-Port Blair, Patna Ranchi
Support Activities
Activity
Analysis
The airline is mulling over raising $150 million via IPO in the coming fiscal year.
Currently, GoAir has 19 A320s in its fleet operating 144 daily flights across 22 domestic
destinations and plans to expand to 72 aircrafts over 52 cities. Rapid aircraft induction
could lead to high costs in opening new stations and an overall spike in operational
Firm
Infrastructure
expenses. An IPO would help the company become cash rich before the rapid inducti
GoAir's small size ensured that it did not burn cash the way some of its peers did and h
made a profit for three consecutive years.
The management believes in very cautiously but firmly ste GoAirs CEO, Mr ProckSchauer, is a visionary leader with well-established network and lot of experience in
Human
Resource
Management
airline operation, both domestic and overseas and low cost and full service airlines. He w
formerly associated with Jet Airways, Austrian airlines and contributed tremendously in
expansion of both the airlines
Technology
Development
SpiceJet launched its Mobile app last year which provides following features:
Flight Booking
Manage your booking
Pre-book spice add-ons
Check flight status
Deals
Procurement
Aircraft procurement on lease which helps GoAir save nearly 50 cr. GoAir is Airbus's
first global customers to take its new A320s with sharklets
PAGE 38
Thus, the generic strategy followed by GoAir is: FOCUSSED COST DIFFERENTIATION
decade but now, as it embarks massive expansion, it faces its biggest tests.
With the government thinking of scrapping the 5/20 rule, GoAirs biggest fear is entrant
of new players such as Vistara, will hinder GoAirs expansion plans to international
operations.
Since a large part of its expansion strategy is dependent on procurement of new aircraft,
delay in aircraft delivery schedule by its supplier Airbus, will largely impact GoAirs
the second highest number of passenger complaints, thus, faring poorly on customer
satisfaction, and increasing consumer bargaining power
.
CHALLENGES FACED BY GOAIR BASED ON COMPETITIVE ADVANTAGE ANALYSIS:
The major competitive advantage that GoAir has is in its operations. Because of the small fleet
size, the operations are more flexible- there is excessive focus on maintenance, in-flight
customer service, enhancement of regional connectivity, etc. Despite this, the airline faces a
tough time to grow big and faster because of the following issues:
1. The pilot attrition rate for GoAir has been high over the last year. The carrier is now hiring
expat commanders. To ensure smooth and effective operations, GoAir should be able to hire
and retain employees, which is indeed one of the major challenges faced by the airline.
2. Challenges in stepping up marketing: With growth plans in place, GoAir must focus on
advertising to create a distinctive identity and reach out to its target customers. Consequently,
the airline should significantly increase advertising activities and an increase in ad spends to
gain more visibility.
3. Frequent changes in leadership and absence of a specific strategy
MAJOR STRATEGIC ISSUE:
As mentioned before, GoAir has competitive advantage in its operations. Though flexible,
however it is not the best in industry, backed by the fact that its on time performance is below
industry average (as shown in graph above: page 30) and number of flight cancellations is higher
than its competitors such as Indigo, Air Asia and Vistara. With a new management in place, and a
clear focus on maintaining profitability, the airline should now excessively focus on building its
core competencies and improving the operations. In my opinion, this is a major strategic issue
that should be resolved by the company.
On time performance, pricing and customer service are the three most important parameters that
help in building passenger loyalty towards any airline. GoAir maintains an average industry price,
provides minimal customer service (but still has high passenger complaints), and is not great on
the time factor. All this may support the airline to maintain profitability, but since the bargaining
power of buyers is high in this industry, it would not take much time for GoAir to lose its
customers and hence the revenues. Good performance is essential to grab market share and hold its
PAGE 40
position in such a competitive scenario. Building trust and loyalty amongst the customers is
necessary for a sustainable business model, which GoAir is vying for.
Besides its own internal reasons, there are other external factors which will increase competition
and make it tough for GoAir to gain market share. These are:
(i)
Abolition of 5/20 rule: The carrier currently has 19 fleets. As per governments 5/20
rule, GoAir can start off with its international expansion plan only on receiving the 20th
aircraft, which is scheduled to be received this year, assuming there are no delay in
delivery schedules. However, the cost of flying international is high. Thus, starting off
international operations would make sense only if the carrier can lower its variable
costs and maintain its margin. Without which, the company feels no incentive to expand
right away.
On the other hand, new entrants like Vistara are prepared to go international as soon as
the government policies allow them to. Once Vistara gains popularity on international
routes, with its satisfying services, it can also gain domestic market share. Thereby
(ii)
At the best what GoAir can do to protect itself from these external factors is negotiate with the
government and abolish such policies (which it is trying to do). Secondly and most
importantly, it must strengthen its own operations and services.
RECOMMENDATIONS TO SOLVE THIS STRATEGIC ISSUE:
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Indigo
Primary Activities
Activity
Analysis
Sale - leaseback Program: This was the first in the Indian aviation industry
multiple plane models and struggled to mix full-service and low-fare options
IndiGo stuck with its policy of offering one class of no-frills service on a sin
type of plane. Indigo has chosen to stick to the world's best-selling single-ais
aircraft, the Airbus A320
Deft planning: It also helps to capture the local market better. For instance,
Inbound Logistics
IndiGo has connecting flights to four destinations from Ranchi: Delhi, Patna,
Mumbai and Bangalore. It now wants to add Kolkata and Raipur to the list. T
strategy ensures that a traveller from Ranchi will not have to look at a nonIndiGo flight to go to any of these destinations. So he becomes a loyal
customer and IndiGo gets a larger share of the Ranchi market and adds new
customers. Cost-consciousness is reflected in the fact that it will not go to a
new destination until it can fly from there to at least four different cities and
amortise costs. IndiGo carried 27 per cent more passengers in the domestic
skies last year, while the industry carried 5 per cent less, and added only one
new destination in the whole year but flew more flights from existing cities.
cost by sale leaseback program, wise selection of fleet and deft planning has pai
a lot of benefits
PAGE 43
strives to maintain even in the face of poor infrastructure. This actually helps
industry how to run an efficient airline and could be a role model to others.
One of the key costs is the maintenance and spares which constitute about 10
per cent of the operational costs. The strategy of Indigo is to ensure that an
aircraft doesn't stay grounded for too long because they make money only
Operations
gets an aircraft ready for its next flight in 31 minutes compared to 35 minute
few years ago
They followed a contrarian strategy last year amidst the slowdown and
increased capacity and introduced new flights in order to get more passenger
The airline increased its capacity by over 39 per cent, even while the total
industry capacity fell by 4 per cent
High Passenger load factor: The focus is purely on offering the cheapest an
affordable fares. This has ensured the airline to have high passenger load fac
One could argue that Air Deccan was offering cheaper fares. Yes they were b
it was irrational pricing which could not be sustained. They are very
transparent in their pricing and this was what is helping them to fill up their
more capacity on select routes, rather than spread itself thinly over several
Conclusion: Value for money and providing additional services has provided the
airline to boost its ancillary revenue.
While all other customer are low fares, indigo positions itself as an on-time
airline which values customers time
Marketing & Sales
Conclusion: The ads of Indigo positions itself as on-time airline thereby making
valuing customers needs
normal food.
IndiGo's success model largely relies on consistent low fares, regular on-time
Services
Conclusion: Though Indigo is able to save costs a lot by cutting some services, t
additional services by itself have a huge potential
Support Activities
Activity
Analysis
Indigo announced a fivefold increase in net profit to Rs 787 crore for 2012-1
IndiGo's fifth straight year of profit, while the industry lost Rs 46,000 crore i
Firm Infrastructure
IndiGo's employee-aircraft ratio has improved from around 120 two years ag
to 100-102 now. In striking contrast, Jet Airways has a ratio of 130, while Ai
India's ratio is 262
Lean Workforce: It has one of the leanest workforce amongst the airline
PAGE 45
companies. They operate a fleet of 40 planes with just 4000 people which
translates into a ratio of 1:100 which is better than the worldwide industry
average of 1:125. Obviously this helps in saving costs and ultimately drives u
their profits. Also their top management is less heavy and hence the decision
could be taken faster and better
Conclusion: No major dissatisfaction amongst SpiceJet employees reported in
media which shows that the firm is doing well on this front
Unlike manual systems used by other airlines, IndiGo planes are equipped w
a digital link system for for transmission of short, simple messages between
aircraft and ground stations via radio or satellite called Aircraft
Technology
Development
aircraft to its operations control centre - and immediately the same departure
time gets recorded in the software. Similarly, the moment the flight lands an
automatic message is triggered from aircraft to control centre
Indigo has ordered A-320 Neos which are 15 per cent more fuel-efficient and
Procurement
efficiency
Ancillary revenues have inched up to 9 per cent of the total, an increase of on
percentage point, in the last one year
Conclusion: Clear Balance sheet gives IndiGo good bargaining power with the
suppliers and is able to get good deals with the help of its social power
From the Value Chain Analysis performed above, we can conclude that the generic strategy of
SpiceJet is OVERALL COST LEADERSHIP
PAGE 46
Indigos brand message is low fares, on-time flights and a hassle-free experience
Indigo has high operational reliability and thus is able to cut costs
Focus on smaller cities for capturing market share which generally have price-conscious customers
Focus on capturing the entire market in a particular city by increasing the number of flights in that
particular city rather than increasing the spread. This helps the airline in reducing costs in terms of
recruiting new employees in the new cities
KEY RATIOS:
1. Available Seat Kms (ASK) = (total no of seats available for transporting passengers) X (no
of miles flown during period)
2. Revenue Passenger kms (RPK) = (no of revenue paying passengers) X (no of miles flown
during period)
PAGE 47
JET AIRWAYS:
Primary Activities
Activity
Inbound
Logistics
Analysis
Conclusion: Since fuel cost is among the major cost contributors, the
company ensures smart management and procurement of fuel to
achieve improved profitability
Operations
Outbound
Logistics
Operate one of the most modern fleet in the world including Boeing,
Airbus and ATR aircrafts
Ensures that passengers experience the best in comfort, cabin
design and reliability
Recently with arrival of its new Airbus A330-200 and Boeing 777300ER aircraft, a new cabin with upgraded seats have been
introduced in all classes
Short-haul destinations are served using Boeing 737 Next
Generation. ATR 72-500s are used only on domestic regional routes,
while long-haul routes are served using its Airbus A330-200, Airbus
A330-300 and Boeing 777-300ER aircraft
Services
Support Activities
Activity
Analysis
Firm
Infrastructur
e
Management
31st March, 2013, was 12,082 (as on 31st March, 2012: 12,849)
The company has a whistle blowers Policy aimed at encouraging
employees to report to the Whistle Blowing Investigation Committee
(WBIC) for addressing and redressing any unethical and improper
practices or any other wrongful conduct in the Company
Jet Airways benefits and perks, include insurance benefits,
retirement benefits, and vacation policy
In October, 2008 1900 employees were laid off but were later asked
to join back, this was the largest layoff in the history of Indian
aviation industry
Technology
Developmen
t
Procurement
From the Value Chain Analysis performed above, we can conclude that the generic strategy of
SpiceJet is OVERALL DIFFERENTIATION
Major points for strengthening this conclusion are as follows:
Jet Airways mission statement states that it will achieve the position of the most preferred
domestic airline in India by offering a high quality of service and reliable, comfortable and
efficient operations
The airline offers free meals and in-flight entertainment experience along with on-time
performance whereas its peers have removed the free meals services as a cost cutting
mechanism, this way it continues to distinguish itself from its competitors
Jet Airways continuously works for improving aircraft utilization by adding more red-eye
flights & early hour departures, thereby continuing to stay relevant for multiple customer
segments
On the commercial front, they are focusing on increasing corporate penetration and
improving Premiere Loads. There is a dedicated team now in place focusing solely on
global key accounts
The airline continues to offer an overall flight experience to its passengers thereby
positioning itself as a premium brand and appealing to the psychological instincts of the
customers
According to flightstats.com, Indigo has emerged as the best Indian airlines in terms of
reliability and punctuality in 2015 followed by Jet Airways
The average delay in arrival has been found to be the least in Indigo closely followed by Jet
airways which is roughly around 15-17 mins
As per data released by the Ministry of Civil Aviation, low-fare airline IndiGo saw the least
cancellations at just 0.2 %, low passenger complaints at just 2.5 per 10,000 but high OTP
of 94.6%
PAGE 52
VISTARA
PAGE 53
Primary Activities
Activity
Analysis
Inbound
Logistics
Made Delhi a hub since it has low Aviation Turbine Fuel (ATF) prices
and a comparatively less congested airport.
The Vistara management were aware that airport charges will be
reviewed after 2014 and expected the new charges to be much
lower. In February 2015, a cut close to 78.4 per cent in airport
charges for Delhi was proposed. Fuel costs account for around 45-50
per cent of the airline's cost whereas airport cost is less than 10 per
cent.
Outsources services such as IT, engineering services, airport
handling and line maintenance. Line maintenance includes regular
checks and proper handling of spare parts. This minimizes their
costs.
Relied on Singapore Airlines' expertise to get competitive contracts
in areas such as engineering maintenance and aircraft leasing.
Operations
Outbound
Logistics
Marketing &
Sales
Conclusion: Believes that a full service is more than just offering inflight meals. Differentiates itself by providing a complete end-to-end
service to the customer.
Differentiated its frequent flyer program Club Vistara by offering
points based on the money spent rather than on the miles flown.
Partnership with Singapore Airlines and SilkAir with which Club
Vistara members will earn points while flying those two airlines.
Looking at fly-and-stay tie ups with Taj Hotels and Resorts which is
owned by Tata Sons.
Intensive marketing campaign targeted towards companies whose
executives frequently fly business class.
Conclusion: Vistara aims to be closer to their potential customers
and spends less on marketing.
Services
has indicated that they are in favor of abolishing the rule. There is some
uncertainty with regards to the rule being abolished or not since the
Federation of Indian Airlines (FIA), comprising of Jet Airways, Indigo,
GoAir and SpiceJet is lobbying against it. So Vistara may just continue
with their normal operations and wait to see if this rule is abolished. If
this rule remains, Vistara should consider acquiring GoAir. This would
enable them to fly international since GoAir has a fleet of 19 Airbus A320
aircrafts and have been operating in India for five years. Also, GoAirs
route dispersal complies with the governments rule of deploying
capacity to Tier II cities.
2) The second recommendation would be to reconfigure the aircrafts and
completely do away with the unprofitable business class. The premium
economy and the economy classes have done well. Doing away with the
business class and adding more seats to the premium economy and
economy would help increase the load factor till Vistara can commence
its international operations.
PAGE 56
REFERENCES
http://www.livemint.com/Companies/NjHGKS5smpmDUsH6m6xrUK/Indias-domestic-aviation-marketfastest-growing-in-the-worl.html
http://www.ibef.org/industry/indian-aviation.aspx
http://www.makeinindia.com/sector/aviation - Makeinindia
http://www.india-aviation.in/pages/view/38/an_overview.html - MoCA- conference
http://www.airbus.com/company/market/forecast/- airbus
http://timesofindia.indiatimes.com/business/india-business/Two-startup-airlines-may-fly-from-Bengaluru-thissummer/articleshow/46628050.cms -startups planes
http://www.bangaloreaviation.com/2016/02/2015-annual-review-the-best-airlines-in-india.html - 2015 trends competitor analysis
http://dgca.nic.in/reports/Traffic_reports/Traffic_Rep0315.pdf - competitor analysis
http://marketrealist.com/2014/12/top-airlines-revenue-passenger-kilometers/
http://www-935.ibm.com/services/multimedia/uk_en_airlines_2020.pdf strategic groups example
GoAir
http://articles.economictimes.indiatimes.com/2013-11-26/news/44486913_1_giorgio-de-roni-net-profit-port-blair
http://articles.economictimes.indiatimes.com/2015-01-12/news/57983225_1_giorgio-de-roni-budget-carrier-goair against 5/20 rule
http://economictimes.indiatimes.com/industry/transportation/airlines-/-aviation/goair-becomes-first-indian-airline-to-start-night-flights-to-portblair/articleshow/50681422.cms port blair to Bangalore
http://www.businessinsider.in/CEO-Prock-Schauer-envision-to-take-GoAir-to-new-heights/articleshow/47936098.cms - Prock Schauer HRM
http://www.businessinsider.in/GoAir-wants-to-do-an-IndiGo-mulling-to-raise-150-million-via-IPO/articleshow/49578327.cms
http://www.exchange4media.com/marketing/goair-%E2%80%93-taking-flight-on-marketing--digital-wings_41001.html marketing
http://economictimes.indiatimes.com/industry/transportation/airlines-/-aviation/how-ceo-wolfgang-prock-schauer-plans-to-scale-up-goairsoperations/articleshow/47932825.cms
http://www.business-standard.com/article/companies/goair-s-big-test-begins-from-2016-115062600217_1.html
http://economictimes.indiatimes.com/industry/transportation/airlines-/-aviation/After-CEO-Giorgio-De-Roni-30-GoAir-pilotsquit/articleshow/47009195.cms
http://economictimes.indiatimes.com/industry/transportation/airlines-/-aviation/a320neo-delivery-to-goair-likely-to-bedelayed/articleshow/50255307.cms
http://economictimes.indiatimes.com/industry/transportation/airlines-/-aviation/wadia-owned-goair-opposes-scrapping-of-5/20-rule-that-willbenefit-tatas-airlines/articleshow/50661279.cms
http://economictimes.indiatimes.com/opinion/interviews/new-airlines-like-vistara-airasia-trying-to-influence-aviation-policy-says-goairs-jehwadia/articleshow/47535683.cms
http://economictimes.indiatimes.com/industry/transportation/airlines-/-aviation/a320neodelivery-to-goair-likely-to-be-delayed/articleshow/50255307.cms
Jet Airways
https://en.wikipedia.org/wiki/Jet_Airways
http://www.jetairways.com/doc/InvestorRelations/WhistleBlowerPolicy.pdf
http://www.jetairways.com/EN/JP/InvestorInformation/policies.aspx
http://www.jetairways.com/EN/JP/InvestorInformation/policies.aspx
http://www.jetairways.com/doc/InvestorRelations/AnnualReport2012-13.pdf
http://www.jetairways.com/en/in/jetexperience/mission-statement.aspx
http://www.bangaloreaviation.com/2016/02/2015-annual-review-the-best-airlines-in-india.html
http://www.jetairways.com/EN/IN/JetExperience/in-flight.aspx
http://www.jetairways.com/EN/IN/JetPrivilege/Promotions.aspx
http://www.jetairways.com/EN/IN/JetExperience/about-jet-airways.aspx
http://www.jetairways.com/doc/FactSheet_JetAirways.pdf
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