The secret recipe of

Indigos Profitability
Group 3
1501065 | Alok Nanda
1501069 | Ankith Passi R
1501080 | Harmeet Singh
1501100 | Sabyasachi Sahu
1501110 | Sushant Anand
1501116 | Vinit Gaikwad

Current Threats

Agenda

Technolog
ical
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06

Way Forward(Threats )

05

Business Model

04

Value Chain

03

Financials (Projections)

02

Industry Analysis

01

PESTEL Analysis
2

Industry Overview

Indian
Airline
Industry

6th largest civil aviation market in the World with Total passenger traffic

7.6 %

CAGR in passenger volume [2010-2014]

12.8% CAGR [2015-2020].

No Frills Carriers constitute 64.2% of domestic airline industry.
Available Seat Kilometer(ASK) :

36.5 %
Indigo
Airlines

market share [2015]

Fleet Size: 102 Airbus A320
681 daily flights connecting 40 destinations
IPO of 3200 cr. On 19th October 2015
Consistently profitable from the last 6 years.

Technolog
ical
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Source: Wikipedia, DGCA website

PESTEL Analysis

PoliticalPolitical

1.
2.
3.
4.
5.

ATF enjoys Govt. Subsidies but it is also heavily taxed.

State governments give tax sops to attract airlines. Ex: Odisha, MP, WB.
Government subsidies for airlines in remote areas
Regulators: MoCA, DGCA, AAI, BCAS.
Restrictions regarding routes, investment and merger and acquisition(49
FDI)
6. Current budget: Plans to revive around 160 airports at the price of 50100Crore rupees
7. There has been no stable tax regime

1. Real GDP expected to grow at a CAGR of 7.1% from CY2014 to CY2019

2. The number of Indian middle class is expected to rise at a CAGR of 15% to
reach 107.9 million by 2019
Social
3. Depreciation of Rupee against the US Dollar can impact profitability and
margins
4. Uncertainty regarding economic slowdown, increased wage rates and
Economical
Technolog industrial unrest can lead to operational and financial difficulties
5. High inflation rate can reduce the growth of economy
ical
6. Downgrading of Indias debt rating can adversely affect the ability of 4
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airlines to raise debt in international markets

PESTEL Analysis
1. DGCA has mandated tracking of carbon footprints and taking steps to
reduce them .
Environmenta
l Political 2. DGCA has put forth regulations on noise pollution while landing and take
off
3. DGCA has put forth regulations to monitor air quality at airports

Legal
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1. India has stringent labour laws and trade unions. It makes hiring and
firing difficult. In past there have been cases of strikes that bring
operations to a shut down.
2. Litigations with regards to trademark and intellectual property rights.
Ex. Tata litigated against the use of the name indigo
3. Business and activities are regulated by Competition Act,2002
S

Technological

1. No technological breakthroughs in the industry

2. The changes have been incremental in nature.
3. Focus on safety, capacity and fuel efficiency

Breakdown of Porters five forces

Suplier Power
HIGH
Airline
Manfacturers(Airbus,Boei
ng)
Concentrated Suppliers
(Powerful)
Heavily Dependent (Not Powerful)
Industry Switching Cost High
(Powerful)
Supplier Offerings Differentiated
(Powerful)
No Substitutes of the Supplies
(Powerful)
Cannot Threaten to Forward
Integrate
(Non-Powerful)

Fuel Suppliers(IOCL, BPCL,)

Concentrated Suppliers(Powerful)
Not Heavily Dependent for Revenues
(Powerful)
Industry Switching Cost NOT High
(Not Powerful)
Supplier Offerings Un-Differentiated
(Not Powerful)
No Substitutes of the Supplies
(Powerful)
Cannot Threaten to Forward Integrate.
(Not Powerful)
Industry is Price Taker.
(Powerful)

Public Private
Partners

(AAI)

Concentrated Suppliers
(Powerful)
Heavily Dependent
(Not Powerful)
No Substitutes of the Supplies
(Powerful)
Cannot Threaten to Forward
Integrate
(Non-Powerful)

Breakdown of Porters five forces

Buyers Power
HIGH

Threat to Entry
Low

For Customers and

Aggregators
Low Switching cost
(Powerful)
Cannot Backward Integrate
(Non Powerful)
Products standardized/ undifferentiated
(Powerful)

Rivalry
HIGH

Incumbents
Barrier to Entry
Incumbents
a. Supply Side EOS
b. Demand Side EOS
High Switching Cost
High Capital Investment
Unequal Distribution Channel

High
High
High
High
High

Expected Retaliation
Vigorous Response by Incumbents
Price Cut to gain Market share
Possessed substantial resources to fight
back
Retaliation is HIGH

Intensity of Rivalry
Numerous Competitors(Moderate to
High)
Industry Growth (High)
High Exit Cost(High)
Rivals are highly committed(High)
Firms follow diverse
approaches(High)
Price Competition is liable to
occur
Low Marginal Cost(High)

Threat to Substitute
LOW
No Credible substitutes are present
Ex: High Speed Railway,
Teleconferencing

Industry Analysis

Suppliers
Bargain
power
HIGH

Threat of
new
entrants
LOW

Technolog
Industry is Unattractive for any new Entrant
ical
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Rivalry between
Competitors
HIGH

Buyers
Bargaining
power
HIGH

Threat of
substitutes

LOW
8

Financial
Summary
Profit Margin EBITDAR (in %)

CASK excluding fuel costs (in rupees)

Indigo

Maintenance Costs/ASK (in rupees)

Air India

GoAir

SpiceJet

Jet Airways

Ownership Cost per ASK (in rupees)

0.60

1.8
1.6

0.50

1.4

0.40

1.2
1

0.30

0.8

0.20

0.6
0.4

0.10

0.2

0.00

0
Indigo

Air India

GoAir

SpiceJet

Jet Airways

Indigo

Air India

GoAir

SpiceJet

Jet Airways

Primary
Primary activities
activities

Support activities

Value Chain
Technology - New Skies & Sky Price operating system for reservations, inventory & revenue management.
- SAP for financial management and Microsoft dynamic solution to support customer service team.

HRM

- Higher pilot recruitment criteria than DGCA standards.

- Continuous hiring, Ab initio training program and ifly training facility.
- Employees not part of any labor union and hence no risk of labor strike.
- Low Employee to aircraft ratio.

Firm infrastructure - Operating from leased properties from their promoters.

- Outsourcing ground support equipment.
Sourcing
Aircrafts (SaleLeaseback
Financing, Bulk
purchase,
Homogenous
fleet)
Sourcing ATF
(Hedging Fuel)

Inbound logistics

Node identification
Check-in operations
Aircraft Operations
(Take
Off/Landing/Safety
Checks- C & D)
Tightly framed
maintenance
contracts

Operations

Linkage
with Shuttle
services.

Outbound Logistic

Holiday package
deals.
Promotional strategy.
6E Pass
Linkages with Hotels
Ancillary revenues
Direct Sales Channels
Airport Lounge
Facility

Marketing & Sales

Customer
Relations
Grievance
Redressal
System
Portable
RAMP facilities
Prepay options
Lost baggage
services
Service

VRINE Analysis
Activity

Valuable

Rare

Inimitable

Nonsubstitutable

Financing

Y (short run)

Y (short run)

Y (short run)

Sustainable
advantage

Fuel Hedging

Competitive Parity
Temporary
advantage

Node
identification

Y (short run)

Aircraft
Operations

Y (short run)

Y (short run)

Maintenance
contracts

HRM

Y (short run)

Competitive
Consequences

Sustainable
advantage
Competitive Parity
Temporary
advantage

11

Threats to Future Profi tability

Inability to acquire additional licenses and traffic rights for targeted geographical markets;
Operational, financial, marketing and legal challenges that arise from political and legal
uncertainties
Poaching of employees by competitors
Delays in fulfilment of aircraft orders by the aircraft manufacturer or inability to finance such
aircraft on acceptable terms.
The entire current and projected fleet comprises Airbus A320 family aircraft, and any real or
perceived problem with the Airbus A320 aircraft or our IAE engines could adversely affect the
operations.
Heavy reliance on third party service providers. So In case there is downstream problem it will
affect theTechnolog
operations

ical
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12

SOURCES

Interglobe Aviation- Red Herring Prospectus

Crisil Report on airline Industry-2014

http://
economictimes.indiatimes.com/industry/energy/oil-gas/bp-plc-given-in-principle-approval-to-market-av
iation-turbine-fuel-in-india/articleshow/50554953.cms

http://www-935.ibm.com/services/multimedia/uk_en_airlines_2020.pdf
http://articles.economictimes.indiatimes.com/2014-10-15/news/55059266_1_180-a320neos-airasia-ind
ia-airbus-a320
http://www.chinaaviationdaily.com/news/51/51111.html
http://timesofoman.com/article/75935/Business/Aviation/Airbus-delay-wipes-$12-billion-off-India's-bigge
st-airline
http://www.airbus.com/newsevents/news-events-single/detail/indigo-signs-mou-for-250-a320neo-aircraf
t/
http://www.bbc.com/news/business-13884433
http://
articles.economictimes.indiatimes.com/2013-02-13/news/37079404_1_indigo-president-aditya-ghosh-in
digo-plans-rahul-bhatia
http://www.business-standard.com/article/companies/indigo-among-the-fastest-expanding-airlines-gl
obally-113010200071_1.html
http://www.business-standard.com/article/companies/indigo-flies-past-jet-to-become-largest-airline112081800006_1.html