Pricing Strategy-Indigo Airlines

Prepared by Bhooshan Kanani

*Prepared for educational purpose only

Agenda

• Introduction to Aviation industry in India

• About Indigo airlines

• Competition Analysis

• Cost Leadership – The Pricing Strategy

• Success Factors

• SWOT Analysis

• Way forward to Indigo Airlines

Aviation Industry in India

• 1932 JRD Tata launched TATA Airline

• 1948 Air India International came in- being between Indian Govt. and Air India(TATA Airline)

• 1986 Private Sectors players permitted as Air taxi operators like Jet, Air Sahara etc.

• 1994 Private Carrier permitted to operate scheduled services

• 2003:Entry of low cost carriers

Indigo Airlines

INDIGO

Parent Company InterGlobe Enterprises

Category Indian Domestic Sector

Sector Airlines

Tagline/Slogan Go Indigo

USP On time performance, Lowest price

• Indigo is an Indian airline company headquartered at Gurgaon. It is a low cost carrier and the largest airline in India One type of fare - low

• Set up in early 2006 by Rakesh Gangwal and Rahul Bhatia, of InterGlobe Enterprises

• One type of airplane - brand-new Airbus A320s

• One type of fare - low

• One type of customer service - professional

• One way to deal with delays and cancellations - honestly

One way – Indigo Way

STP

Segment Cost Conscious Passenger

Target Group Lower Middle Class/Middle Class

Positioning Low Cost No Frills

Existing players in Low Cost Carriers

Competition

Competitors

Jet Airways

Spice jet

Go Air

Air India

Comparison with competitors

Steps up price war & won

Challenge to Indigo

REF: http://www.financialexpress.com (posted on Feb 26, 2014)

Pricing StrategyCutting costs

• One service one fleet (63 Airbus A320s)

• Higher fuel efficiency

• Alliance with Airbus for maintenance

• Asset light leasing model

• IndiGo has 96 employees per aircraft; lean-and-mean vis-à-vis to Air India's 250 a plane

• Only Indian airline to adopt RNP approach: Fuel and cost savings; Faster turnaround at airports

• Gradual expansion

• Lower flight to market ratio

Pricing StrategyCutting costs

• Single Model of Aircraft

• Operate on Secondary Airport

• Hub & Spoke Model

• Fewer Employees per air craft

• E-Ticketing

• Single Class Configuration

• No In-flight Entertainment Systems

• Ancillary Revenues

Cost Leadership – Its Go Indigo way• War on Costs

• On an average, an IndiGo aircraft flies for around 12 hours a day, compared to 8 to 10 hours logged by most competitors.

• Aircraft operates with a minimum set of optional equipment, reducing costs of acquisition & maintenance, thereby keeping the weight of the aircraft lower and thus saving fuel.

• Indigo has broken up the job into small parcels like loading, unloading and cleaning with time targets and each of these is monitored. The team is trained to focus on its job. They have even turned around an aircraft in 14 minutes.

• Amongst the first to Select1 V2500 engines manufactured by Zurich-based IAE, which will help it cut fuel-burn by around 2 per cent.

Cost Leadership – Its Go Indigo way• Being no-frills as an added advantage for the airline, it takes

lesser turn-around time then full service carriers which cater food on-board.

• To reduce its cost of holding inventory of components, IndiGohas done a tie-up with Air France under which the French airline will stock components required by Indigo. In this way, the Inventory will not be in Indigo‘s Books.

• The airline has trained its crews to de-plane the passengers in 6 minutes and unload the baggage in 10 minutes. It regularly achieves Turn around times of around 22-25 minutes(Industry Average being much more than 30 minutes).

• Using the lightest passenger seats in India - only 12.8 Kgs. Using paint which overall weighs 50 Kgs less.

Indigo's success can be attributed to certain things which has done differently as compared to others

1. Single type of airplane to reduce training and service cost

2. On time performance

3. High Passenger load factor – Flight occupancy percentage

4. One of the lowest Cancellation rate in industry

5. Lean Workforce

6. No frills such as free food/drinks, lounges

Success Factors

Point to Point Model

Single model of aircraft

Operate on secondary

airport

Single class configuration

No In-flight services

Fewer employees per aircraft

E-Ticketing

S.W.O.T Analysis

Strength:1. Low fares2. High Service Quality3. Operational Efficiency4. Customer Service5. Short haul flights6. Fuel Efficient Aircrafts7. On time departures8. Investment in technology9. Good advertising and marketing

strategies 10.Lowest attrition in the industry

Weaknesses:1. Less differentiation2. Short lived innovations3. Untapped domestic cargo

segment4. No established alliances5. Lack of product depth and

breadth6. Less routes than competitors7. Yet to establish in international

market8. No focus on business class

Opportunity:1. Huge untapped International

sectors should be explored2. Growing demand for low cost

airlines3. Increase the frequency of

existing routes4. Increase of long haul aircrafts

as per demand5. Indian market still under-

tapped6. Going regional - smaller cities7. Extension of the current

strategy8. Increase in middle class

population9. Increase in domestic tourism10. Booming air cargo business

Threats:

1. High rising aviation fuel prices

2. Slow down in the economy

3. Growing competition like other LCC carriers, video conferencing etc

4. Austerity measures by corporate sectors

5. Subdued demand from tourist sector

6. Capacity for catering future demand

S.W.O.T Analysis

Way forward for Indigo airlines

•Explore untapped Cargo market•Focus on international LCC•Increase product portfolio from LCC to full carrier service •Focus on innovation•Focus on expansion capacity•Cut down of advance booking prices•Link to tourism industry