Strategic Analysis of

Aviation Industry

Comparative Analysis
of Indigo and
Singapore Airlines
&
Air Asia Alliance
 Aviation Industry – Global
Scenario
o THE GLOBAL AIRLINE INDUSTRY Global Airline Industry Profit by Region
 Consists of over 2000 airlines 2012 (million $)
 Operating more than 23,000 aircraft
 Providing service to over 3700 airports 100
 Average Growth Rate of 5% in last 30 years
 Contributes around 8 % in the world GDP 100

Latin America
o MAJOR INDUSTRY PLAYERS 100
 Delta Airlines , United Airlines, Southwest Airlines,
American Airlines– USA
500

Europe
 Lufthansa – Germany
 Southern Airlines - China
4100

o MAJOR AIRCRAFT MANUFACTURERS

2100
 Air Bus Asia Pacific
 Boeing 0

500

1000

1500

2000

2500

3000

3500

4000

4500
Data source : www.Businessvibes.com
 Aviation Industry – Global Scenario

o By 2015, Global Airline Industry would reach $713.6 billion i.e.

42.2% growth from 2010 – States a report by “Marketline ”

o MAJOR REGULATORY BODIES GOVERNING THE INDUSTRY FORCES

GLOBAL AVIATION INDUSTRY
 IATA – International Aviation Transport Association
Threat of New Entrants
 ICAO – International Civil Aviation Organization Power of Suppliers
 CANSO - Civil Air Navigation Services Organisation Power of Buyers
Availability of Substitutes
Competitive Rivalry

OTHER FACTORS
Labor
Fuel Cost
Weather
Economy
Regulation
 Airline Industry Value Chain
FIRM
INFRASTRUCTURE
-Financial Policy - Accounting -Regulatory Compliance - Legal - Community Affairs

HUMAN Flight, route and

RESOURCE
Pilot Training Baggage Handling Agent In-flight
yield analyst
MANAGEMENT Safety Training Training Training Training
training
Product
TECHNOLOGY
Computer Reservation System, In-flight System Baggage Tracking
Development
DEVELOPMENT Flight Scheduling System, Yield Management System System
Market Research
Information Technology
PROCUREMENT Communications

•Route Selection •Ticket Counter •Baggage System •Promotion •Lost Baggage Service
•Passenger Service Operations •Flight •Advertising •Complaint Follow-up
System •Gate Operations Connections •Advantage
•Yield Management •Aircraft •Rental Car and Program
System (Pricing) Operations Hotel Reservation •Travel Agent
•Fuel •On-board Service System Programs
•Flight Scheduling •Baggage Handling •Group Sales
•Crew Scheduling •Ticket Offices
•Facilities Planning
•Aircraft Acquisition

INBOUND OPERATIONS OUTBOUND MARKETING SERVICE

LOGISTICS LOGISTICS AND SALES

Adapted from Competitive Advantage: Creating and Sustaining Superior Performance, copyright 1985 by Michael E. Porter.
Industry Market Forces
 Aviation Industry - Indian
Scenario
• India is the ninth largest Aviation market in the MAJOR MILESTONES IN LAST DECADE
world 2001 Aviation Turbine Fuel (ATF)
• Indian Aviation industry is growing at a CAGR prices decontrolled
of 16% 2003 Air Deccan as India’s first LCC
2005 Kingfisher, SpiceJet, Indigo
• MAJOR PLAYERS Go Air, Paramount start operations
 Indigo 2007 Industry consolidates; Jet
 Spice Jet acquired Sahara; Kingfisher
acquired Air Deccan
 Jet Airways
2010 SpiceJet starts international
 Air India operations
• BUSIEST AIR TRAFFIC ROUTES 2011 Indigo starts international
 Mumbai-Delhi operations, Kingfisher exits LCC
segment
 Delhi – Bengaluru 2012 Government allows direct
ATF imports, FDI proposal for
allowing foreign carriers
to pick up to 49% stake under
consideration
 Forward Thrust
• Open Sky Policy
• Deregulation
• Modernization of Airports
• Reduction of excise duty on Growth forecast of Air
Passengers (in millions)
ATF and abolition of taxes
• FDI proposal for allowing
foreign carriers to pick up to
49% stake under consideration
 Industry Analysis – Porter’s 5 Forces Model
Airline Industry Analysis – Indian Market
•Aircraft Manufacturers •Foreign Carriers
•Aircraft Leasing Companies – MSD Aviation •Regional Carrier Start ups
Potential •Cargo Carrier Business Strategy Change
•Labor Unions
•Food Service Companies New Entrants
•Fuel Companies
•Airports
•Local Transportation Service
•Hotels

Intra-Industry Rivalry
Bargaining Rivals: Spice Jet, Go Air, Indigo
Bargaining
Power (LCCs)
Jet Airways, Air India (Main Power of Buyers
of Suppliers
Airlines)
•Travel Agents
•Business Travelers
•Federal Government
•Alternate Travel Services
•Pleasure Travelers
• Fast Trains Substitute •Charter Service
• Boats
•Private Transportation Products •Cargo and Mail
•Videoconferencing and Services
 FACTORS ENCOURAGING INVESTMENT IN INDIAN
AVIATION INDUSTRY
Strong growth prospects
Relatively underpenetrated market
An opportunity to create India as a hub
An opportunity to create India as an MRO centre
Low Valuations

FACTORS DISCOURAGING INVESTMENT IN INDIAN

AVIATION INDUSTRY
Aviation economics are not favourable in India – Higher ATF Taxes

Inadequate Infrastructure

Poor financial health of most airlines

Highly competitive & Price Sensitive traveller base

Industry Business Model
Typical Airline Operating Expenses
 CARGO V/S PASSENGER
• Function in very different manner
• Core operation procedure differs on
fundamental level
• Cargo business is all night affair
• Benefits of operating over night
– virtually no traffic while in the air
– The lower level of air congestion allows for less traffic
deviations and sequencing into and out of airports
– Also at night, weather is less active and the air is a bit
smoother, which pays in spades to making sure flight
arrive on time
• More deviations for traffic and weather means
burning more fuel and more crew costs for the
airline.
 CARGO V/S PASSENGER (cont..)
• Benefit of the aircraft they fly

– Cargo airlines rarely buy brand new aircraft at full price. Instead, they buy
aircraft that have been retired from airline service because of the high hours
and cycles

– The cargo industry also enjoys different maintenance requirements than the
airlines. Cargo operations have less strict maintenance requirements than the
passenger airlines

• Contractual cargo services - These companies have contracts with

passenger airlines that allow them to ship items via passenger service

• Untapped Air Cargo Market: Air cargo market has not yet been fully
taped in India and is expected that in the coming years large number of
players will have dedicated fleets.
 Overview
 Cost Leadership Strategy

 Industry & Market

• Growth Trend
• Key Segment
• Cost & time- driving factors

 Indigo’s Arrival & Strategy

• Background
• Positioning
• Key focus areas
• Competitive approach
• Conclusion
 Background
• IndiGo Airlines commenced operations on the 04 of August
2006 with their inaugural flight from Delhi to Imphal.

• Founded by Rahul Bhatia and Rakesh Gangwali, InterGlobe

established IndiGo the following year, modelled on US low
cost carrier JetBlue and bolstered with an investment from
president & CEO Bruce Ashby (a former US Airways EVP).

• Consolidating its position as the fastest growing airline in

India with 237 flights ,connecting 25 destinations across the
nation, in a short span of  almost 5 years
• January 19, 2011 ±India's largest low fare airline, IndiGo, has been
granted international traffic rights, by the Government of India, to
operate services from several cities in India to Singapore, Bangkok,
Dubai and Muscat during the forthcoming summer schedule

• August 12, 2010 Airlines bagged the prestigious Skytrax World

Airline Award for being the best low cost airline of India & Central
Asia at the World Airline Awards .

• Within 6 years of operation it has captured almost 20% of the

market share and is the fastest growing airlines in the domestic
market. Indigo has recently captured the no-1 position betting Jet
Airways and Kingfisher.

• The aircrafts with all economy 180 seats were onboarded.

Market Share
 IndiGo Airlines
• Vision
To become a diversified international corporation in the areas of Air Transport
Management, Travel Related Services and Information Technology by
delivering outstanding value to our Business Partners, Customers, Employees
and Shareholders.

• Mission
To provide our customers with the most inspiring retail and digital
environments in the world for books and life-enriching products and
experiences.
 PESTEL analysis
Political
1.
Deregulation of sector
2. 100% FDI in Greenfield airports
3. 49% FDI in aviation
4. Airport infrastructure privatized
5. Plan for upgrading non metro airports in next 5 years

Economics
1. Rising income of Indians
2. GDP growth rate
3. Global economic stagnation sees slowing rate of increase in
demand
 PESTEL analysis
Social
1. Change in the lifestyle has effect on the marketing strategies of
airlines
2. Young population with growing income
3. Rise in the number of tourist
4. Status symbol to travel in planes

Technological
1. Growth in ecommerce- real time information
2. Modernization and privatization of airports
3. Development of Greenfield airport with private sector
 PESTEL analysis…
Environmental
1. Sudden and unexpected behavior of atmosphere
2. Shortage of infrastructural capacity

Legal
1. FDI limits
2. Airlines merger and acquisition
Strength
1. Largest low cost carrier
2. Consistent profit making
3. Reasonable market share
4. Brand value in international market
5. Good Marketing strategies
6. Tie up with hotels
7. Good IT in place

Weakness
1. Less routes as compared to competitors
2. Not yet establish in international
market
3. Scope for product differentiation is less
4. Not exploring air cargo market
Opportunity
1. International routes
2. Increasing market share in Indian market
3. Chartered flight service
4. Development of Airport infrastructure

Threat
1. Many competitors in low cost carrier
2. Rising Labor cost
3. Changing govt. policies
4. Rising fuel price
5. Workforce
 Indigo strategy
Tie up
with
hotels

reduction
in training
& service
cost
 Indigo strategy
1. Cost leadership strategy

2. Single passenger class

3. Single type of airplane hence reduction in training and service cost

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

5. Direct sale of ticket is preferred to avoid markup by agents

6. Tie up with hotels

Indigo’s Key drivers Reduces maintenance and
inventory cost
Lower charges, lower turnaround
Benefits time due to less congestion
Single model
Improves aircraft utilization by
of aircraft reducing waiting time at airports
More seats per flight so spread
Operate on costs over a larger base
E-Ticketing secondary
airport
Helps to keep the cost and hence
the fares low. No frills such as
Point to Point free food/drinks, airport lounges
Model etc.
Reduces employee cost and leads
Fewer to higher employee productivity
Single class
employees
per aircraft
configuration Emphasis on direct sales of ticket
through internet to avoid fee and
No In-flight commissions paid to travel agents
services Primarily on board Sales. Provide
alternate source of revenues –
helps to reduce break even PLF.
Cost Leadership Strategy
This strategy is all about gaining competitive
advantage over competitors by reducing costs.
The key ingredients in
There are two main ways of achieving this
within a Cost Leadership strategy: effective cost leadership
strategy are :
♦ Increasing profits by reducing costs ♦ Economies of Scale
considerably, while charging industry-average ♦ Access to the capital
prices
♦ Efficient Supply Chain
♦ Volumes – Increasing market share through
♦ Superior Management
charging lower prices, while still making a ♦ Use of Technology
reasonable profit on each sale because you’ve ♦ A low cost base (labor,
reduced costs materials, facilities)
 Indigo’s Positioning
 Price & Product Attributes ±Economy
oriented

 Customer Service Processes ±On time

every time

 Strong & Organized Service Distribution

& Delivery Systems

 Healthy & Luxurious Service

Environment

 Competent Service Personnel

 Expansion strategies
• Increase domestic destination to 50 from the
current 25 destinations by 2015.
• Start Air cargo and chartered service by 2015.
• Strategic alliance to have footprint in
international market.
• Improve IT for better customer service and
increasing efficiency on continuous basis.
 The Asia Pacific Region and
Singapore Airlines
• The Asia Pacific is an important region in
terms of commercial air travel with a steady
growth.
• Flag carrier airline of Singapore.
• Consistently profitable but experiencing
profit pressures.
• Winner of multiple awards for “airline
excellence.”
• An extension of the country strategy to be
the business and travel gateway to
Southeast Asia.
• An impressive travel infrastructure.
• Leader of the Orient Airlines Association
(OAA)
SIA began as Federation of Malasia
MALASIAN AIRWAYS LTD New look of Airlines Inclusion of
MALAYAN With BOEINGS B707s
Came into existence B747s & B727s
& B737s DC-10
1947 1963

1957 1966 1972

MALASIAN-SINGAPORE MALASIAN SINGAPORE

Addition of DC-4 Airline AIRLINE was split into
SKYMASTER, SINGAPORE AIRLINES
VICKERS VISCOUNT, Etc MALASIAN AIRLINES
 Singapore airlines
• Mission
“Singapore Airlines has a responsibility not only to be an excellent
company, but also to be an excellent citizen of the world by
enhancing the lives of the people we touch.”

• Vision
“we are a global company dedicated to providing air transportation
services of the highest quality and to earning good returns to
shareholder.”
 PESTEL analysis
Political
1. Govt. intervention in companies operation
2. Extend to which company can allocate finance within
and outside domestic region
3. Policies adopted by foreign countries which have an
impact on companies operation
4. Favourable tax system.

Economical
1. Acquisition beyond boundaries
2. Factors like inflation, taxation, economic growth,
exchange rate and inflation
3. Cost of running business is increasing because of the
economical factors
PESTEL analysis cont…
• Social factors
1. Customer demands, ability to afford to fly,
attractiveness of being a flight attendant, status, novelty
values
2. Maintain trust of the people

• Technological factors
1. IT for the benefit of customers
2. Productivity suite for the passengers
3. Technologically advanced aircraft (longhaul)
 PESTEL analysis cont…
• Environmental
1. Company need to maintain right adherence In 1993, a total of 1000
to the environmental concern airports in 182 countries,
2. Safe environmental measures 45% of air travellers
embarked and
disembarked at
• Legal only 25 airports in 17
countries.
1. Restriction in flying over or in someone
flying zone 15 airports in 12 countries
2. All essential licenses to fly in a particular accounted for 50 % of
route the total amount of
international cargo loaded
3. Singapore airlines has flying rights over and unloaded worldwide.
major countries
4. Singapore trying to establish in American
continent
Strength
1. Geographical location adv
2. Trend setter in industry
3. Aircraft with large capacity
4. Fuel efficient aircraft
5. Government support, airport
6. Lower maintenance cost (new)
Premium services, differenciation
Opportunities
1. Large customer base to exploit in
region
2. Increase in demand of trans-pacific
cargo
3. Global airlines market
4. Middle east, China and India
Weakness
1. Not good at horizontal integration
with a few failed acquisition.
2. Considerately high spending on
marketing
3. Rely heavily on airline aliances
Threats
1. Fuel prices
2. Many players changing model to
low cost
3. International political environment
Organizational Activity System
 Singapore airlines strategy
1. Dual strategy (differentiation and cost leadership)
2. Excellent service to customers, Business class passengers are
one of the key profit.
3. SIA joined with Star Alliance to have a footprint in
international market, tie-up with airlines in Europe and North
America, Lufthansa in 1998 – allowed access to Frankfurt and
other destinations in Germany and Europe.
4. Strategic alliance with local org in India and China (cargo
division, airport services, engineering services and catering)
5. Good IT in place for customer service and increasing
efficiency, relatively new fleet of aircraft (less than half of the
avg age in industry)
Future scenarios of SIA
A: B : Singapore Airlines is in full
-deregulated, economic condition tough, wait throttle when the world airline
for the better condition as de regulation is markets are fully deregulated and
best for SIA. the economic conditions are
good, and SIA is really showing
-SIA has strong balance sheet, its will survive very strong colours indeed
is better than competitors
-After the economy springs, chances of M&A
of struggling airlines at best rate
C:
Will be stuck in singapore & global
expansion will be very difficult
-Here the support of the government
will be helpful in survival

D:
-Reap the profit from increase in
customer Demand
Expansion very difficult
 Suggestions WITH PARTNERSHIP
Presently
-Equity swaps
• Establish other HUBS ( but at -Code sharing
present government forbids this) -Selling seats

• Alliance (overseas) is a key option Implement

– (Lufthansa to access Frankfurt)
• Yield management
– creating a personalize service that
differentiate the airlines with its
competitor
• Strategic partners
-Pool marketing efforts
-frequent flyer program
-Mutual access to airport capacity
POTENTIAL NWT TO FIGHT
AGAINST DEREGULATION

• Network optimization AIR CHINA

– Asia CHINA EASTERN AIRLINES
CHINA SOUTHERN AIRLINES
– china
• M&A
 Airline Alliances
• The Star Alliance is the largest of the major groupings.
Consisting of 15 airlines led by United Air Lines and Lufthansa.
Star serves about 815 destinations in more than 130 countries.

• Oneworld, which is eclipsed by only Star among the major

airline alliances, is led by British and American Airlines. Eight
airlines offer service to 550 destinations in more than 130
countries.

• SkyTeam is quickly becoming a major alliance player by serving

more than 450 destinations in nearly 100 countries. Led by Air
France and Delta, SkyTeam has also consolidated cargo services.
 BENEFITS
• Economies of scale and specialization
• Cross country specialization
• First mover advantage and technological
sophistication
• Market access
• Risk sharing
• Branding
• Seamless service networks
• Cost efficiency
• Service improvement
• Market power
 New Breed of Airline Alliances
• Megacarrier Alliances
• “LCC” Alliances (P-P now overlapping)
• Network Specialist Alliances?
• Product Specialist Alliances?
• Price Specialist Alliances?
• Interactive Marketing Agreements
 Airline Alliances
• The “Star Alliance” is the largest of the major groupings.
Consisting of 27 airlines led by United Air Lines and Lufthansa.
Star serves about 815 destinations in around 194 countries

• “Sky Team” is quickly becoming a major alliance player

consisting of 19 airlines by serving more than 1000 destinations
in nearly 187 countries. Led by Air France and Delta

• “One world”, which is eclipsed by only Star among the major

airline alliances, consisting of 12 airlines is led by British and
American Airlines. Eight airlines offer service to 550
destinations in around 47 countries

These three alliances account for more than 60 % of global passenger traffic
Air Asia
Vision:
To be the largest low cost airline in Asia and
serving the 3 billion people who are currently
underserved with poor connectivity and high
fares
Mission: • Vision
• To be the best company to work for whereby
employees are treated as part of a big family • Mission
• Create a globally recognized ASEAN brand
• To attain the lowest cost so that everyone
can fly with Air Asia
• Maintain the highest quality product,
embracing technology to reduce cost and
enhance service levels
Destinations
• Established in 1993
• Produced profit in 2002
• Promotional fare – $ 0.27
• Operations:
• 142 routes
• 88 destinations
(including subsidiaries)
• 400 daily flights
• Hedged 100% of its fuel requirements
for the next 3 years
• Subsidiaries:
• Air Asia X
• Thai Air Asia
• Indonesia Air Asia
• Air Asia Philippines
• Air Asia Japan
• Air Asia India (expected in June 2013)
 Key Strategies
• Partnering with the world’s most renowned
maintenance providers and complying with the
world airline operations

• Implementing the regions fastest turnaround time at • Safety First

only 25 minutes, assuring lower costs and higher
• High Aircraft
productivity
Utilization
• Providing guests with the choice of customizing • Low Fare, No Frills
services without compromising on quality and • Streamline
services
Operations
• Making sure that processes are as simple as possible • Lean Distribution
System
• Offering a wide and innovative range of distribution • Point to Point
channels to make booking and traveling easier Network
• Applying the point-to-point network keeps operation
simple and lower costs.
Business Model (LCC)
• Catering on demand for extra payment
• Planes with narrow seating and only a single class
• No seat assignment
• No frequent flyer programmes

• Non-business passengers, especially leisure traffic and

price-conscious business passengers
• Short-haul point to point traffic with high frequencies
• Aggressive marketing
• Secondary airports
• Competition with all transport carriers

• Low wages
• Low airport fees
• Low costs for maintenance, cockpit training and standby
crews due to homogeneous fleet
• High resource productivity
• Short ground waits due to simple boarding processes
• No air freight, no hub services, short cleaning times, and
high percentage of online sales
 Strength
• Low cost operations
• Fewer management level, effective, focused
and aggressive management
• Simple proven business model that
consistently delivers that lowest fares
• Penetrate and stimulate to potential markets
• Multi-skilled staffs means efficient and
incentive workforce
• Single type fleet minimize maintenance fee
and easy for pilot dispatch
Opportunities
• Long haul flight is a trial to get undeveloped
market share
• Differentiation from traditional LCC model by
adding customer services or operation as full
service airline with low fare
• On going industry consolidation has opened
up prospects for new routes and airport
deals
• High fuel prices will squeeze out unprofitable
competitors
Weaknesses
• Service resource is limited by lower costs
• Limited human resources could not handle
irregular situation
• Government interference and regulation on
airport deals and passenger compensation
• Non-central location of secondary airports
• Brand is vital for market position and
developing it is always a challenge
• Heavy reliance on outsourcing
• New entrants to provide the price-sensitive
services
Threats
• Full service airlines start cut costs to compete
• Entrance of other LCCs
• High fuel price decreases yield
• Accident, terrorist attack, and disaster and
affect customer confidence
• Aviation regulation and government policy
• Increase in operation cost in producing value-
added services
• System disruption due to heavily reliance on
online sales
Major Challenges
• Increasing competition because of
increasing number of low cost airline
competitors, and aggressive competition
against the large or traditional airline
companies
• Customer decrease because of poor
economy
• Rising of the fuel prices
• Higher labour cost
• Inadequate infrastructure
• Route and flight utilization
• Safety and security issues of aircraft crash
or being attacked
Air Asia India - Alliance
• 2013, 168% y-o-y increase in profits in
comparison to 2012
• Despite 1% rise in average fuel price,
airline’s net profit – US$114.08 mn for
the quarter ending Dec 2012
• Affected by limited distribution of sales in
India & Air Asia
• CEO Tony Fernandes reckons India as
“monster of opportunity” with
population 50 times that of Malaysia
• Indian Govt. allowed an FDI of 49% in
aviation sector
• AirAsia also the first foreign airline to set
up a subsidiary in India
• Air Asia seek operations in India with
– 49% (Air Asia Stake)
– 30% (Tata Sons)
– 21% (Amit Bhatia owned Telstra TradePlace)
• The JV mark Tata Sons' return to aviation
industry after 60 years
Challenges with Alliance
• Air Asia anticipate a bruising
price war
• Ensuring the lowest cost in the
business is challenge
• Low cost carrier model requires
high operational efficiency
• Political challenges pose a major
threat for the deal approval
Future Outlook
• Replace A320 by A330 to increase the revenues and efficiencies by 15-
20%
Airbus A330
– seating capacity 377
– Turnaround Time 40 min
– Hangar Area 1780 sqft
Airbus A320
– seating capacity 180
– Turnaround time 25 min
– Hangar Area 1320 sqft
Cost = (40/25 - 1) + (1780/1320 - 1 ) = 0.94
Revenue = (377/180 – 1 ) = 1.1
Current Fleet size of 120 & ordered 355. Target fleet size of 250-A320 and 150-
A330.
• Passenger traffic has grown at a CAGR of 16% over the last decade,
although 2.3% of overall decline has been observed after KFA
abandonment
• Hub & Spoke Model
• Alliance Formation
– Join one amongst the 3 major alliances
– OR follow a 3-pronged approach
• A) Develop in its home market ( 6 subsidiaries)
• B) Gain foothold in other Asian markets (India & Major). Acquiring Paramount Airways
(1.4%), GoAir (5.25%) with a target of acquiring 20-25% in Indian Airline market
• C) Establish a global presence through marketing alliances with other non-Asian airlines or
making share purchases in them.
 Bibliography
• http://civilaviation.nic.in
• http://mahdzan.com/papers/sia/SINGAPORE_
AIRLINES.pdf
• http://www.zenithresearch.org.in/images/stor
ies/pdf/2011/July/12%20T.Suganthlakshmi.pdf
• http://www.businessteacher.org.uk/free-busin
ess-essays/strategic-management-singapore-ai
rlines.php
• Cover story- business today July 11 2010
• ATW 34th annual 2008 Airline industry
THANK YOU