ADVANCED COMPETITIVE POSITION ASSIGNMENT

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,
he left the US 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.
Competitive life Cycle Analysis
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.

CLC Analysis
EMERGENT PHASE
MATURE PHASE

INDIAN LOW COST

CARRIERS

GROWTH PHASE

Fig 2. CLC Analysis Indian LCC industry.

8. During the last 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.
 I INDIGO HH
N
T
. HL
T LL LH
R
A
D
E
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
and other towns of 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.

IN
DU LH indigo
ST
RY

AT
HH
TR
AC
LL HL
TIV
EN
ESS
Competitive advantage

fig 4 diversification matrix.

Stakeholder analysis

15. Indigo Airlines 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.
 Exhibit 1
Stake Holder Map

type of Stake-
stakeholder holders Issues

1. Profitability: Indigo is most profitable

LCC in India.
Owners 2. Growth :It has high growth prospects
3. Company Brand :It has high brand
equity.
1. Economy of travel: It is leading low
cost airline with transparent low prices.
Passengers 2. Quality of service: New aircrafts good
cleanliness.
Primary 3. On Time Performance: Best on time
stake performance.
holders
1. Career Progression :Transparent HR
policy
Employees 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.

1. Financial Integrity: Timely payments.

2. Business growth : enhanced orders.
Suppliers 3. Fairness : Transparent deals.
 1. CSR Policy: Reasonable CSR policy
Primary 2. Pollution and noise issues: Though
stake Community Industry generic points, but offers
holders opportunity to indigo to take initiative.

1. Regulator directives. DGCA Directives

and other business rules and ethics.
Government 2. Employment Generation: Any
expansion plans involving employment
Secondary generations generally welcomed by govt.
stake 1. Unfair Trade practice: No such issues
holders Advocacy should flair up in public space.
Groups 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.
References
1. http://centreforaviation.com

2. IndiGo schedules, Indigo official website.

3. https://www.glassdoor.co.in