Air India Express Case Study

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Strategic analysis of Air India Express

Introduction:

This report is a strategic analysis of Air India Express using a 2019 case by Jayakrishnan. Air

India Express is a subsidiary of Air India Ltd, launched in 2005 with the objective of offering

passengers low-cost, convenient flights to both Indian and foreign destinations. The Low-Cost

carrier (LCC henceforth) has since gained popularity amongst passengers despite facing

challenges and has since made expansion plans. The first part of this report will explore the

company’s strategic position using strategic position tools such as PESTEL and Porter’s Five

forces to assess external environmental factors, and VRIO to assess internal factors. A SWOT

analysis will be conducted as a link between internal and external factors. The second part of

this report will use a TOWS analysis to present potential strategic choices. The second section

will also use Porter’s Generic and Hybrid strategies as strategic choice models for the analysis

of the case. The final section will evaluate some considerations that should be taken with the

adoption of the strategic choices that will be presented using the SAFe strategy in action model.
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Part 1: Strategic position

PESTEL analysis

A PESTEL analysis can be used as a tool for analysing the strategic position of an organisation

by exploring external, macro-environmental factors and are also used to identify an

organisation’s key drivers of change in strategic analysis (see Appendix 1 for full

comprehensive PESTEL analysis of the case).

It can be inferred from the PESTEL analysis of the case that a significant socio-cultural factor

that influences the strategic position of Air India Express is the increasing demand in the low-

cost aviation market (see appendix 1). According to the case, the aviation sector in India has

grown significantly both in passenger travel and cargo businesses, and both domestic and

international demand for low-cost air travel is forecasted to grow further in the coming years.

The airline’s own market share has grown as a result of this; however, the airline still has a low

market share of 13.3% compared to its competitors whose market rates are up to 39.6% (see

appendix 2). Research has linked the increased need for global connectivity as a critical driver

of the growth of the aviation sector, this factor will only increase in relevance (IATA, 2018).

The airlines potential for growth in their sector is highlighted by this data.

Political and economic factors should also be considered in the macro-environmental analysis.

Costs for aviation businesses are prone to fluctuation as a result of economic factors like

wavering aviation turbine fuel (ATF henceforth) costs and political factors such as state-

dependent ATF sale tax rates (Srija & Bajaj, 2020). This presents Air India Express with a

challenge as its organisational objective for providing both domestic and international

travellers with low-cost, high quality, reliable flights is only feasible if costs are consistently

low. It should be noted however that there are government incentives, especially after the
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COVID-19 crisis, that compensate airlines for financial losses and allow for increased airline

capacity that Air India Express can take advantage of (Abate, et al., 2020).

Porters Five Forces

Another tool that considers external factors for analysis of strategic position is Porter’s Five

Forces framework which examines factors such as the threat of entry and substitutes, the

bargaining power of buyers and supplies and rivalry between existing competitors (Porter,

1980).

The company faces an increasing threat of substitutes through the emergence of domestic

LLC’s that offer the same service routes to Dubai, Sharjah and Muscat as Air India express

with the same mission of delivering competitive or negotiated fares, free meals and convenient

flights. Many of these companies have adopted hybrid strategies that offer advantages from

both LCC and premium airlines with passengers given the option to upgrade services. The

threat of substitution is a high threat force for Air India Express as competitors are offering a

superior price-performance ratio that benefits from the innovation of hybrid strategies and

therefore should be considered when exploring strategic options.

Another high threat force that Air India express is faced with is the rivalry between existing

competitors. The aviation sector in India is experiencing rapid industry growth rates with

growth in domestic travel by 20.6% and international travel by 6.1% during the period April

2015 to January 2016. Differentiation between competitors is becoming less apparent with

LCCs matching Air India express by offering similar services like complimentary meals and

adopting similar objectives to deliver low-cost, high quality and convenient flights to domestic

and international travellers. The aviation industry is faced with high-fixed costs as a result of

fluctuating ATF costs and tax rates and maintenance that costs companies 15% of their revenue.
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The above factors make the threat of rivalry between existing competitors a high-risk one that

should be considered for strategic analysis.

VRIO

Internal factors should also be considered for the strategic analysis of an organisation. VRIO

analysis is used to identify and evaluate an organisation’s resources and capabilities in terms

of value, rarity, difficulty to imitate and the extent organisations support exploiting resources

or capabilities (See Appendix 2).

A resource of Air India Express that can be identified from the case study is their fleet of 23

aircraft. This is a valuable resource for the organisation intensive airline utilization allows for

the organization to make an acceptable return (International Civil Aviation Organization,

2017). This, however, is not a rare resource for the organisation as Air India Express’ fleet size

of 23 is relatively low compared to its competitors (see Appendix 3). This resource is difficult

to imitate as a result of high start-up costs associated with acquiring aircraft, however, it cannot

provide a competitive advantage as it is not unique to Air India Express, with competitor

airlines boasting larger fleet sizes. This means that the Average Stage Length flown by Air

India Express is significantly lower than its competitors (see Appendix 4). Despite

organisational support of exploiting this resource effectively by increasing average aircraft

utilization from 10.8 to 11.3 hours a day proving the company with a sustainable advantage,

figures for total Passenger load factor suggest that other regional LCC’s are utilizing their fleets

capacity more effectively.

Point-to-point connectivity is a valuable capability of Air India express as it takes advantage

of increased international travel trends as well as a lack of LCC that provide this in the Indian

Aviation Market. An additional capability of Air India Express is their originally innovative

approach of offering passengers low-cost travel with additional services such as complimentary
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meals and punctuality. This provides the company with a cost advantage that is valuable to the

organisation as it takes advantage of an opportunity in a growing market that is unsaturated.

These capabilities are can no longer benefit from rarity as an advantage as competitors such as

Fly Dubai have begun offering similar services at competitive prices. Despite Air India

Express’ established reputation and the organisation’s resourcefulness in delivering this, the

simplicity of this model makes it easy to imitate for competitors.

SWOT Analysis:

From the above macro-environmental and internal analysis of Air India Expresses’ strategic

position, further analysis of the company’s strengths, weaknesses, opportunities and threats can

be inferred in a SWOT analysis (see appendix 5).

The airline company has displayed strengths of effective aircraft utilization despite a weakness

being the organisations small fleet size compared to its competitors. The airline’s established

reputation of offering point-to-point connectivity with a cost advantage is another strength.

However, a respective weakness is the replicable nature of this model.

External opportunities for the company include India’s growing aviation market as well as

increasing demand for Low-Cost Carriers. With this opportunity comes the threat of an increase

in competitors adopting low-cost strategies as well as new hybrid companies that offer a

substitution to the company’s services. Fluctuating ATF prices and ATF sales tax rates pose as

an organisational threat, however, government incentives for loss compensation are an

opportunity. A final threat to consider is competitors adopting the same service routes in direct

competition with Air India, however, there is still opportunity in this as the Indian government

has plans for improving air connectivity through the revival of 160 airports in India.
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The above analysis can be used to consider some strategic choices available to Air India

Express that will improve operations and provide the potential for expansion.

Part 2: Strategic Choices

From the strategic analysis, strategic choice options can be developed to improve operations

and provide expansion potential using the TOWS model which focuses on internal strengths

and weaknesses and external opportunities and threats (see Appendix 6).

A strength opportunity that is identified using the TOWS model is the established reputation

of Air India Express to deliver low-cost, high quality, reliable flights with opportunity in

growth rates in the Indian Aviation market. The proposed market-level strategic choice option

for the organisation in response to this strength opportunity is diversification. The Ansoff

Matrix is a tool that can be used to develop market-level, growth strategic choices of increasing

risk in response to organisational performance levels (Ansoff, 1965). Of the four strategies

proposed in Ansoff’s Matrix, diversification can be applied in response to the Strength

Opportunity presented in the case. The LLC share in the Indian Aviation market has

significantly grown to a 65% share (Directorate General Of Civil Aviation, 2017),

diversification would be a strategic choice for Air India Express as it would allow the company

to take advantage of the asset of their strong reputation response to a growing market.

Diversification includes increasing the range of products or services that an organisation may

offer. Related diversification is a way for Air India express to branch out their services.

Agreements with Fly Dubai has been deliberated, with the goal of increasing market size by

utilising both airlines’ services to offer passengers a larger range of destinations. This alliance

would be a good step for diversification as it would take advantage of the economy of scale to

reduce overall costs while simultaneously taking advantage of external opportunities.

Conglomerate diversification is also an option, proven successful by Virgin, it may be

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beneficial for Air India Express to consider diversifying into other industries. It is important to

note that this is a high-risk strategy as factors such as start-up costs, legal constraints and

potential price wars may result in this strategy choice failing or not fulfiling potential levels of

success.

Porter’s generic strategies offer an alternative approach to price/cost level strategic choices for

businesses that aim to improve an organisation’s competitive advantage. These choices are cost

leadership, differentiation and focus. Differentiation is identified as a strategic choice that can

be taken in response to weakness opportunity and strength threat in the TOWS analysis. A

weakness opportunity that can be identified is the replaceability of the low-cost airline model’s

services with opportunity coming from market growth in the Indian Aviation industry.

Differentiation strategy includes offering consumers unique and distinct products or services.

This can be achieved through the development of a refined hybrid model in which the

established low-cost benefits remain with streamlined options for a range of upgrades and

services. Differentiation can also be used as a response to a strength threat where Air India

Expresses cost advantage is threatened by fluctuating ATF costs and sale tax rates.

Differentiation allows Air India Express to take advantage of their existing customers by

developing a unique hybrid model that introduces price premium options that will not only

serve as a competitive advantage against other airlines but also introduce new revenue streams

that can compensate for any potential losses that are as a result of fluctuating ATF costs. An

issue to consider when adopting differentiation as a strategic choice is the potential for new

competitors in the premium airline industry with the adoption of a hybrid model that offers

premium services at reduced costs.

The final strategic choice that will be presented is product development from Ansoff’s Matrix

tool. This choice will address the organisations weakness of small fleet size in comparison to
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competitors with the threat of hybrid models being offered by competitors. Product

development is a low-risk strategic choice that involves introducing new products into existing

markets. Hybrid models have already proven to be successful for other aviation companies.

Travel is not limited to flight and therefore aviation companies have the option to peruse

alliances with other travel-related companies to streamline usage to one platform. With taxi-

hailing companies increasing in popularity on an international scale, an approach to product

development may be developing a service that can simplify travel by offering a single platform

for users to access a wider of services and products. It should be considered, however, that

new resources and strategic capabilities will have to be required which means this choice is

expensive and high risk.

Strategy in Action

A method that organisations can deploy to analyse and plan strategic actions is SAFe criteria

which presents important considerations for organisations based on the sustainability,

acceptability and feasibility of their choices. Below is a comprehensive SAFe analysis rating

the strategic choices prosed in the TOWS analysis out of 5 in terms of their sustainability,

acceptability and feasibility. All the strategic choices proposed are suitable as they effectively

exploit opportunities and avoid threats while capitalizing on strengths and remedying

weaknesses. Acceptability and feasibility are limited as a result of the financial position of the

parent company. It is imperative that financial planning and risk assessment be used to avoid

the challenges presented in the below analysis.

Suitable Acceptable Feasible Total

score

SO1: 4/5 2/5 4/5 10

Diversification
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This strategic option is Diversification is not This strategy has
suitable for this an acceptable strategic proven to be successful
organisation as it can choice as it poses a both in terms of related
successfully exploit the high financial risk that and conglomerate
opportunity for the may not fulfil the diversification in
company presented by expectations of its companies such as
the growth in the Indian parent company Air EasyJet and Virgin
aviation industry. This India which is Group (Sadq, 2016).
strategic choice can also burdened with debt.
capitalise on the This strategy may not
company’s existing be financially feasible
positive reputation as a result of the burden
within the industry as a of its parents companies
strength. debts. Alliances,
however, have been
presented as a means of
reducing the financial
strain of diversification.

SO2: 5/5 3/5 3/5 11

Differentiation
This strategic option is This strategy has the This strategy is
very sustainable for the potential to be somewhat feasible as
organisation as it accepted by financial feasibility is
exploits both, consumers and low however, alliances
opportunities presented suppliers as it has can have been suggested
by growth in the Indian offer larger ranges of and the strategic choice
aviation sector and products to satisfy can be implemented
threats posed by larger ranges of gradually therefore
fluctuating costs by consumers. This reducing the direct
capitalising on the strategic choice is, financial strain.
company’s existing however, expensive
popularity and offering a and poses a financial
solution to an risk that its debt-
organisational weakness ridden parent
company may not
afford to take.

SO3: Product 4/5 3/5 2/5 9

development
This strategic choice
avoids the threat of
competitors replicating
their model through the
development of new
models. This choice also
successfully remedies
the weakness presented
by lack of resources by
This strategy may be This strategy requires a
accepted by existing large initial finical
consumers, however investment that is not
due to its high feasible given the
financial risk, financial position of its
investors and the parent company.
parent company may
be reluctant to accept
this choice.
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proposing alterative
products and services.

Conclusions

This strategic analysis report used strategic position tools such as PESTEL and Porters 5 forces

to assess external, macro-environmental factors as well as VRIO and SWOT analysis to assess

internal factors in relation to Air India Express’ strategic position. The second part of this report

utilizes TOWS analysis to present strategic choices in response to the organisation’s strategic

position. The final part of this report evaluations considerations that the organisation should

take when adopting strategic choices using the SAFe strategy in action model.
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Appendix 1
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Appendix 2

Appendix 3
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Appendix 4
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Appendix 5
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Appendix 6

Bibliography
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aftermath of the COVID-19 pandemic. Elsevier Public Health Emergancy Collection, Volume

89.

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and Expansion. 1 ed. s.l.: McGraw-Hill; Later Printing edition .

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Directorate General Of Civil Aviation, 2017. Handbook on civil aviation statistics, New Dehli:

Directorate General Of Civil Aviation.

IATA, 2018. Strengthening Indian Aviation. Montreal: Internation Air Transport Association.

International Civil Aviation Organization, 2017. Airline Operating Costs and Productivity,

Tehran: International Civil Aviation Organization.

Porter, M. E., 1980. Competitive Strategy: Techniques for Analyzing Industries and

Competitors. 1 ed. New York: Free Press.

Sadq, Z. M., 2016. Virgin Group Success Businesses: Diversification, and Key Strengths.

Account and Financial Management Journal, 1(1), pp. 56-67.

Srija, A. & Bajaj, S., 2020. Fuel Price Movement in India – An Introspection. Confederation of

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