Introduction India is one of the fastest growing aviation industries in the world.

Because of theintroduction of liberalization policy in the Indian aviation sector, the industry has witnessed avast difference with the entry of the privately owned full service airlines and low costcarriers. In 2006, the private carriers accounted for around 75% share of the domesticaviation market. Besides, there was significant increase in the number of domestic air travelpassengers. Some of the factors that have resulted in higher demand for air transport in Indiainclude the growing purchasing power of middle class, low airfares offered by low costcarriers and the growth of the tourism industry in India. In addition to the liberalizationpolicy, the deregulation policy has also played a major role to encourage private players inthe 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 costcarriers 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 otherhand, rising fuel costs and taxation rates, increased the operational costs. Thus the lowcostplayers found it difficult to maintain their commitment. In their urge to survive, they werecompelled to increase prices, add free refreshments and beverages on-board, etc. Someplayers 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 toconsistently maintain low costs, IndiGo resorted to measures like outsourcing and having ahomogeneous 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 itsoperations on August 4, 2006. InterGlobe Enterprises, a renowned travel corporation, is theowner of IndiGo. The IndiGo team uses all of these resources to design processes and rulesthat are safe and simple, that make sense, and that cut waste and hassles, which in turnensures a uniquely smooth, seamless, precise, gimmick-free customer experience at fares thatare always affordable. It was awarded the title of Best Domestic Low Cost Carrier in Indiafor 2008. The airline currently operates 120 daily flights with a fleet of nineteen brand newAirbus A320 aircraft and flies to 17 destinations. IndiGo plans to serve approximately 30Indian cities by 2010, with a fleet of approximately 40 A320

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, lounge Emphasis on direct sale of ticket through Internet to avoid fee and commissions paidto 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 competitiveadvantage 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 enterthis market, we will use the Porters Five Forces model. This will be useful in gaining insightabout the entry barriers, power of buyers and suppliers, competition among the existingplayers and the feasible alternatives in aviation industry.SWOT analysis of the company will help us understand the current positioning of thecompany 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 ChainAnalysis. This will help identify the strengths and weaknesses of the company. Further, theanalysis of government policies, competitors strategies and other variables like fuel prices,increasing domestic traffic, economic downturn etc will lead us to the external influences thataffect the aviation industry of India. Hence, using the external environment study, we cancome to know about the opportunities and threats for IndiGo airlines. Thus, the consequencesand 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

External Analysis Airline Industry Attractiveness 1. Foreign equity allowed: Foreign equity up to 49 per cent and NRI (Non-Resident Indian) investment up to 100per cent is permissible in domestic airlines without any government approval2. 2. Attraction of foreign shores: After five years of domestic operations, many domestic airlines too will be entitled tofly overseas by using un utilised bilateral entitlements to Indian carriers.3. 3. Rising income levels and demographic profile: Demographically, India has the highest percentage of people in age group of 20-50among its 50 million strong middle class, with high earning potential.4. 4. 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 glamorousas the airlines. Airline tycoons from the last century, like J. R. D. Tata and HowardHughes, and Sir Richard Branson and Dr. Vijaya Mallya today, have been idolized Porters Five Forces strategy for Airline Industry

Threat of New Entrants Product differentiation: In low cost carriers, there is not much differentiation in the basic service that is beingprovided to the customers. Differentiation can only be achieved by Value AddedServices. IndiGo provides check-in kiosks, stair-free ramps, and Q-Busters. Hence thisargument works in favour of IndiGo Switching cost: The switching cost is not high. Customers can easily choose other low cost carriers.2. The switching cost of an airline company to other business/industry is high as the exitcost is high.

In aviation industry the major entry barriers can be: 1. Government regulations:

The government's open sky policy has encouraged many overseas players to enter theaviation market 2. Aviation was primarily a government owned industry. Due to liberalisation Indianaviation industry is now dominated by privately owned full-service airlines and low-cost carriers. Private airlines account for around 75 per cent share of the domesticaviation market.

Indian Civil Aviation Policy:

Private sector is allowed to operate scheduled and non-scheduled services .4. Operator should be a citizen of India or a company or a body corporate which isregistered in India and whose principal base of business is in India. 5. Chairman and at least two thirds of its Directors are Indian citizens. 6. Foreign equity participation up to 49 percent and investment by Non- ResidentIndians (N.R.I), Overseas Corporate Bodies (OCBs) up to 100% is allowed. Therepresentation of the foreign investing institution/entity on the Board of Directors of the company shall not exceed one-third of the total. 7. Foreign airlines are not permitted to pick up equity. Foreign financial institutions andother entities who seek to hold equity in the domestic air transport sector shall nothave foreign airlines as their shareholders. 8. .As regards safety and security arrangements, the operators must ensure compliancewith relevant regulatory requirements stipulated respectively by the Director Generalof Civil Aviation (DGCA) and the Bureau of Civil Aviation Security (BCAS). 9. For green field airports, foreign equity up to 100 percent is allowed through automaticapprovals. For upgrading present airports, foreign equity up to 74 percent is allowedthrough automatic approvals and 100 percent through special permission (from FIPB)

Setup costs
Nowadays, venture capital of $10 million or less is enough to launch an airline.

In order to overcome the shortfall of aircrafts during the peak seasons, airlines canutilize an ACMI lease agreement for the extra aircraft. If the airline has manyaircrafts, either owned or leased, then they can offer their surplus aircrafts in their lowseason to another airline that is facing peak season An airline company will bear the cost of purchasing an aircraft if it wants to start orexpand its fleet, leasing allows the cost to be spread across several years. At the leaseterm end, the lease can be renewed or aircraft can be returned, to be replaced withmore modern aircraft

Fuel prices: Domestic ATF prices have increased by over 160 per cent from the beginning of 2005 tilllast year and by over 80 per cent from a year-ago levels. In India, oil companies do notimport ATF directly; instead they refine it from imported crude oil. With rising crude oilprices, imports are becoming expensive day by day and at the same time, the governmentis unable to pass on the full impact of this rise to the consumer. As a result, the stateowned oil marketing companies (almost 95 per cent of the market is with state ownedfirms) are forced to sell diesel, petrol, kerosene and LPG at way below cost, a cost theyare trying to somewhat make up by raising the price of ATF, which is under their control.As a result prices of ATF in India are much higher than some of the other Asiancountries Resource: The aviation industry in India suffers a shortfall of pilots. The reasons are:1. The aspirants can receive Commercial Pilot Licence (CPL) only if they undertake atraining abroad.2. The reason being that in India, there is a lack of dedicated flight Instructors, decade-old aircrafts and poor quality training offered at a price much higher than what isoffered by flying schools in USA, Canada and Australia.3. Indian institutes provide training with the help of their training partners in the foreigncountries like U.S.A, U.K etc.

Private airlines hire pilots; get expatriates or retired personnel from the Air Force or PSUairlines in senior management positions. Airlines can contract employees such as cabincrew, ticketing and check-in staff members.In airline sector, finding appropriate labour-force is very costly. Moreover, due to theliberalization of policies by government, foreign and private players often poach work-force of competitors which leads to talent-drain and thus losse Bargaining Power of Suppliers Any airlines in general face a duopoly of two major suppliers of aircrafts i.e. Airbusand Boeing. There are other suppliers like Dauphin,Dronier,Bell,ATR-42 but do notmeet the requirements to serve the low cost commercial aircraft carriers, particularlyIndiGo airlines. Fleet Forecast for the India-Region 2006-2011 shows that there will

e approx. 85% growth in the order rate of air carriers [Exhibit 2] . Thus, suppliers arefew and thus in better position to bargain as they always finds customers for theiraircrafts.

 IndiGo fleet comprise of Airbus-A320 and the switching cost is high due to thelimited number of suppliers. Due to shortage of commercial aircraft pilots in India the supply of pilots isconcentrated, hence increasing their power. There are only four suppliers for ATF (Aviation Turbine Fuel); IOC, HindustanPetroleum Corporation, Bharat Petroleum and ONGC and since their number islimited, they possess more power. The proof of evidence for high power enjoyed by ATF suppliers lies in the fact thatthe ATF prices constitute 35-40% of the costs in India compared to 20-25% globally. The brand value of suppliers is high due to their less number and results in higherbargaining power for them. The airlines also face a threat of forward integration since the suppliers are in closecontact and are familiar with the knowhow of the aviation industry. The suppliers are few and thus in better position to bargain as they always findscustomers for their aircrafts

Bargaining

Power of Buyers

Buyers in airlines industry are large in number and highly fragmented thus loweringtheir power .With the growing Indian economy and increasing low cost carriers, thebuyers have increased and so have the growth opportunities. The switching cost is minimal since there are multiple alternatives available. It is notdifficult to move from one airline to another or to switch to a substitute. Furthermore the players in the particular strategic group do have minimalisticdifferentiating points.

Backward integration from the buyers end is very difficult and next to impossible Competitive Rivalry The aviation industry is a highly competitive industry because of which it is difficult to earnhigh returns in this sector. Below are the major reasons for the high competition in the low-cost carrier airlines: Very little scope for differentiation between competitors products and service

Aviation is a mature industry with very little growth. The only way to grow is by stealingaway customers from competitors Suppliers of aircrafts are the same, i.e., Boeing and Airbus. Hence suppliers bargainingpower is high. Switching cost of customers is high for low cost carriers, i.e., there is no brand loyalty.Closest competitor of IndiGo is SpiceJet followed by GoAir [Exhibit 3] . Below is brief description about each of them

SpiceJet is a low-cost airline based in New Delhi, India. Spice Jets mission is to becomeIndias preferred low cost airline, delivering the lowest air fares with the highest consumervalue, to price sensitive consumers. Its vision is to ensure that flying is no longer confined tobusiness travellers, but is affordable for everyone and thus the tagline flying for everyone Spice Jet airways began its operations in May 2005. SpiceJet has chosen a single aircraft typefleet which allows for greater efficiency in maintenance, and supports the low-cost structure.It has a fleet of 6 Boeing 737-800 in single class configuration with 189 seats. SpiceJet's newgeneration fleet of aircraft is backed by cutting edge technology and infrastructure to ensurethe highest standards in operating efficiency. Spice Jet currently flies to 11 destinations. 4 GoAir Airlines , owned by Wadia Group, is a low-cost budget airline based in Mumbai,India. It has been showcased as The People's Airline. GoAir is looking at 'commoditisingair travel' by offering airline seats at marginally higher train prices to all cities in India. TheAirlines theme line is Experience the Difference

and its objective is to offer its passengersa quality consistent, quality assured and time efficient product through affordable fares.GoAir's business model has been created on the 'punctuality, affordability and convenience' model. Go Air operates four A320 aircraft with a single class, 180-seat configuration, andplans to expand its fleet to 33 aircraft in three years. 5 Thus, we can summarize from above data that all the three players are trying to follow costleadership strategy by bringing down the ticket rates to the minimum possible value.However, it is clear that, to sustain in this cutthroat competition, each player will have tocome up with different strategies to improve the non price factors

Availability of Substitutes The substitute for low cost airline company is the railways. But this substitute is not verypowerful due to the following reasons:1. Customers use airline transport as it is convenient and saves travelling time. So trainscannot work as a substitute to save time.2. Secondly, many customers use airlines as a status symbol. So again, trains cannotsubstitute for prestige.So if we consider IndiGo airlines, the direct substitutes are the other low cost carriers likeSpiceJet and GoAir. So in this case, threat of substitutes is high as the switching costbetween low cost carriers is low Opportunities IndiGo airlines have not ventured into the huge air freight market which cancontribute a sizeable portion of the revenue. A study by Centre for Asia PacificAviation or CAPA 6 , an aviation consulting firm estimates the cargo services of 3.4million tonnes per annum. According to a research conducted by PhoCus, Indian domestic traffic will touch 86.1million by 2010,up from 32.2 million in 2007 7 .The flight density of IndiGo airlines islimited in domestic market; hence there is a big scope to increase the flight frequency [ Exhibit 4]. The huge untapped international sectors should be explored once IndiGo has aconsiderable presence in the domestic market.

 IndiGo currently does not have too many long haul aircrafts and as per CAPA studyby 2020, Indian Airports are expected to handle more than 100 million passengers.IndiGo airlines should focus on long haul aircrafts both for domestic and internationalsectors. The chartered flight services still remain an area not exploited by Indian aviationindustry and IndiGo airlines can play a major role in tapping the potential in thatparticular marke Threats ATF (Air Turbine Fuel) prices have increased radically since 2005 [ Exhibit 5] . Foreign and private players often poach work-force of competitors. Extensive Government Interference can affect the accountability of the organization.In aviation industry, government has control over fuel prices, foreign investments(e.g. FDI policies), tourism laws, taxes etc. This can greatly affect the day to daybusiness in the airline industry. Like every other industry, recession has hit aviation industry as well. People have cutdown on tourism and corporate travels have also been slashed down. The shortage of trained pilots, co-pilots and ground staff is severely limiting thegrowth prospects of all the airline companies. Barriers to exit in aviation industry are high because of high capital investment, nogovernment restrictions and loss of brand image

Strategic Management
INDIGO AIRLINES Europe Asia Business School 13 Internal Environment Analysis Resources, Capabilities and Core Competencies are the key elements of the InternalEnvironment. The resources are tangible and intangible. Tangible resources Aircrafts: The airline currently operates 120 daily flights with a fleet of nineteen brand new AirbusA320 aircraft and flies to 17 destinations. Human Resources: 1. The human resources are the pilots, crew members and ground staff.2. No airline can recruit a trainee pilot and directly assign him to fly an airplane carryingaround 500 passengers. The labour-force has to be trained and then assigned withtasks to perform after proper evaluation. Fuel: 1. Porters five forces model does not cover the importance of complementary product.2. ATF is the complementary product for airplane and it constitutes approximately 35%of the production costs. Intangible resources Brand Equity/Reputation IndiGo is the most reputed low cost carrier due to the following reasons:1. On time arrivals is the key differentiating factor for IndiGo Airlines.2. IndiGo keeps implementing new and innovative ideas to increase the quality of customer service. Recent example is: IndiGo has roving check-in counters wherepassengers with only cabin

baggage can check-in with an IndiGo official with ahandheld device, rather than lining up at the check-in counter.3. It gives the customers the freedom to carry their own eatables and snacks on board.4. Compared to the direct competitors, that is, the other low cost carriers like SpiceJet,Jetlite, etc. IndiGo offers the lowest airfare [ Exhibit 7 & 8] . Social Capital: 1. IndiGo has amicable relationship with the other organizations that contribute to thevalue addition for the service provided to the customers.2. IndiGo has engaged many Travel web-portals and regional travel agents withincentives like booking commissions, etc. There have been no instances of distressbetween IndiGo and its other collaborators, that is, supplier

Collaboration with hotels: Mumbai-based hotel chain operator Sarovar Hotels andIndiGo Airlines announced a marketing tie-up for frequent travellers. The highlightsare:a. The arrangement will allow guests staying at select Sarovar Hotels across 26destinations in India to avail a 10 per cent discount on their next travelbooking with IndiGo.b. While IndiGo flyers can avail up to 25 per cent discount on published roomtariff, 10 per cent discount on holiday stay packages and 10 per cent discounton restaurant dining at select Sarovar properties 8 Hence IndiGo has a remarkable Social Capital. Brand Awareness: IndiGo is a well known Low Cost Carrier in India. The following points contribute to thebrand awareness of IndiGo: 1. Advertising using print media like newspapers, billboards, etc.2. It may not pay for an advertisement in a newspaper, but has been covered in news forits low cost strategy implementation.3.

As IndiGo provides better value added services to the customers, Word of Mouthpromotion also works in its favour

EmployeeRelationship: Good Employee Relationship is a key factor to sustain competitive advantage. IndiGoprovides several incentives to its employees. As per the news article published in TheHindu Business Line: IndiGo officials claimed that they have been seeing a healthy growth in passengernumbers and had no plans to defer delivery of any of the 100 Airbus it has ordered.Hence, it is clearly evident from the above statement that IndiGo is optimistic about itslong term growth. Also, it is planning to expand its employee strength and at the sametime there is no indication of downsizing the current staff.Quoted below are some comparisons about the different approaches implemented byvarious airlines at the time of recession stated in the same article:At a time when several domestic airlines are looking to prune their staff strength, theDelhi-based low cost airline, IndiGo, is on the lookout for more pilots, cabin attendants,customer service and airport service agents.In the recent past, both Kingfisher Airlines and Jet Airways have asked their staff toleave. While Jet Airways offered a voluntary retirement scheme to more than 300 of its INDIGO AIRLINES Europe Asia Business School 15 staff, it was also planning to lay off about 1,900 of its staff. In late September, Kingfisherannounced that 300 employees had parted ways with the company 9 .The above facts show that IndiGo has taken a positive approach while dealing with its loyalemployees at the time of economic slowdown