Service Operations Indigo Case Study

8/10/2019 Service Operations Indigo Case Study

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Indigo

Power of One

Case study

Reference no 310-103-1

This case was writtenby Professor Rajiv Joshi and Dr Bhavin Shah, St Kabir Institute of Professional Studies,

Ahmedabad. It is intended tobe used as thebasis for class discussion rather than to illustrate either effective or

ineffective handling of a management situation. The case was compiled frompublished sources.

2010, St Kabir Institute of Professional Studies, Ahmedabad.

Nopart of thispublication maybe copied.stored, transmitted, reproducedor distributed in any form or

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. .

'St. Kabir Institute of Professional Studies

Indigo: Power of One

The worst sort of business is one that grows rapidly, requires significant capital to engender the growth, andthen earns little or no money. Think Airlines. Here a durable competitive advantage has proven elusive eversince the days of the Wright Brothers .

-Warren Buffett, annual letter to Berkshire Hathaway shareholders , February 2008

Running anAirline is like having a baby: fun to conceive , but hell to deliver.

-C.E.Woolman,PrincipalFounder,Delta Air Lines

Air transport is just a glorified bus operation.-Michael O'Leary,RyanAirCEO,quoted in BusinessWeek Online,12September 2002

Leading domestic budget carrier Indigo is likely to go public with the largest initial public offering

(IPO) that the Indian aviation industry has seen so far. The privately held company is learnt to be

looking at raising anywhere between Rs. 1500-2000 crore. This information comes at a time when

the industry is growing over 20% consistently in last few months. However, the company has been

denying any such move to go public.Aditya Ghosh ,President, Indigo said,

"Every year bankers come and talk to us and we consider various options. This year is no

different. We have some banks working on it. But no decision is made yet."

However, the airline has appointed some bankers like Morgan Stanley , Credit Suisse and Citi for this

task. The company is looking to raise to funds for expansion and promoter will retain majority stake.

Being unlisted, Indigo's financials are not in public domain but the airline is learnt to have made a net

profit of Rs.400 crore in 2009-2010 .1 This is remarkable result of a company given the challenges of

the airline industry ,especially running a low cost carrier in India.The airline in short span of time has

achieved the height which is much coveted by even established players in the industry. Carefully

chosen strategy and well crafted business model makes Indigo different from other low fare carrier

(LFC) or low cost carrier (LCC).

" The case has been developed by Prof. Rajiv Joshi,Assistant Professor, St. Kabir Institute of Professional Sludies,Ahmedabad and Dr. Bhavin Shah, Visiting Faculty,St. Kabir Institute of Proressional Studies,Ahmedabad as a basis Forclass room discussion rather than loillustrate either effective or ineffective handling of a managerial situation. (2010) Rajiv Joshiand Bhavin Shah. All rights reserved.


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Company background

Indigo is one of the fastest growing private domestic low-cost airlines based in Gurgaon, Haryana,

India. It is based on the low cost - no frills model like Air Deccan. It operates on domestic sectors

connecting different destinations in India. The Airline's key base is Delhi's Indira Gandhi International

Airport . Indigo received award of 'Best Domestic Low Cost Carrier' in India for 2008. Indigo Air is

owned by Mr. Rahul Bhatia, owner, lnterglobe Enterprise of New Delhi. Indigo took delivery of its first

Airbus A320 Aircraft on 28 July 2006, received six aircraft during 2006 and nine more Aircraft in 2007

taking lhe total to 15 at the end of 2007. The airline started operations on 4th August 2006 with a

service from Delhi to Imphal via Guwahati. Bruce Ashby , former US Airways Executive Vice

President (Marketing and Planning) joined Indigo as their Chief Executive Officer. The Airline has

also acquired 3 parking spots in Indira Gandhi International Airport, New Delhi and ChhatrapatiShivaji InternationalAirport, Mumbai. The airline Hies on select routes and to and fro like western low

cost carriers selected destinations only. (Appendix I) In short period , silently, Indigo has become the

largest operator and preferred airline in many cities like Ahmedabad and Jaipur.

Indigo believes in minimizing the cost, time and tension of Air travel, thus opening up a country full of

opportunities. In order to deliver the promise of low cost with on time performance and comfortable &

hassle free Air travel, Indigo incorporates the best hardware, software, interface design & people

from around the world . Indigo can offer the lowest fares by staying focused , without cutting corners

or compromising on things that matter. The Indigo team has designed processes and safe & simple

rules lhal cut waste and hassles. This ensures a distinctly smooth, seamless, precise, gimmick-free

customer experience at fares that are always affordable. 2

Indigo focuses on doing one thing, and doing it well. That's why it is known for power of one:

One type of Airplane -brand-new Airbus A320s

One type offare - low

One type of customer service -professional

One type of route - serving destinations within India

One way to deal with delays and cancellations - honestly

Source:golndigo.in

Indigo has not announced any plans to go international but they are expanding aggressively in the

domestic markets. Indigo is looking al hiring 1000 people, which consists of 100 pilots, 400 cabin

crew and rest passenger service staff in 2010. Indigo has 2500 employees and the ongoing

recruitment process will aim al hiring about 50-70 per cent fresh inexperienced cabin crew and


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310-103-1Airport staff that gol trained but did not get a job during the slowdown. Indigo has one of the best on-

time performance records consistently for last few years among nationalAirlines, almost in line with

Jet Airways , India's best Airline . The company has gained admirable market share since its

commencement of operations.(Exhibit 1)

The airline's management team consists of professionals and well experienced people in their

respective field. (Appendix II) The team is being led by the chairman, Rahul Bhatia, who focuses

more on the "macro-aspects" of the business leaving day-to-day running to his chief executives.With

Indigo he restricts his role to liaison with the ministry of aviation, leaving the running of the airline to

his able people. People, Bhatia thinks ,can make or break a business.

Indian Aviation Industry

Present Scenario

The Indian aviation industry is one of the fastest growing industries in the world. The worst in

aviation sector may be a thing of past with domestic air traffic continuing the double digit growth.

Domestic airlines flew 3.97 million passengers during March 2010 , up 23% over the corresponding

month last year. Most of the airlines filled over 70% of their seats during this period. Most of the

carriers are expanding their operation as growth in the sector has stabilized on the back of strong

economy and improved market sentiment.3 The industry is expected to attract investment of over

US$ 120 billion by 2020. India's civil aviation passenger growth, presently at 20 percent, is one of the

highest in the world. By 2020, 400 million Indian passengers are likely to use the Airlines as their

mode of traveling . This is bound to have an impact on the Airports as by 2020 they are expected lo

handle more than 100 million passengers including 60 million domestic passengers and around 3.4

million tons of cargo per annum. The Indian aviation industry is looking forward to good times.

From being primarily a government-owned industry, the Indian aviation industry is now dominated by

privately owned full service airlines and low cost carriers. Private airlines account for around 75 to80% share of the domestic aviation market. (Exhibit 1) The aviation sector has reaped massive

benefit from the entry of private carriers and low cost airlines and this has benefited the passenger lo

a large extent. Earlier, due to the high price, air travel was a privilege only a few could afford, but

today air travel has become much cheaper and can be afforded by a large number of people. No

frills airlines Indigo and Spicejel are looking to increase their fleet sizes by 40% to 20% respectively ,

by this year end. Other carriers will maintain their fleet sizes .4


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Domestic air traffic continued to soar high with airlines flying 3.91 million passengers in February

2010, up 17% from last year, suggesting better financial outlook for the loss-ridden aviation sector.

The two major low-cost carriers, Indigo and Spicejet filled over 80% of their seals during this period,

signaling a passenger shift towards no frill Air travel. While February numbers are below that of

January, aviation industry experts say the growth is more real and sustainable. Domestic airlines

industry had seen nearly 23% increase in passenger numbers in January over the same month last

year. Most of the domestic carriers especially budget Airlines have plans to expand thei r fleet size

in coming months. Traffic numbers as well as yield (revenue per passenger per kilometer) has been

fairly good.s

LCC model is likely to be the growth opportunity in future in the domestic market with LCCs now

accounting for over 50% of domestic market share. This is set to further increase. FSCs likeKingfisher (KFA) and Jet Airways, which had initially written-off the LCC model as unviable, are now

increasingly looking towards the LCC model for survival and growth. In fact, since November 2008,

the market share of LCCs has consistently been just over 50% in domestic market. As the scale of

the LCCs has grown lhe fixed costs are being spread over larger number of flights. Plus with

passengers getting used to LCCs and concomitant lower fares, LCCs are the way forward in the

domestic market and for short haul international destinations . With the economic recovery, business

flying has once again increased, but the major growth has been in the value end of the market. The

battle for Indian skies will remain a tough one in the near to medium term.s

Evolution of Indian Aviation Sector

J.R.D. Tata is considered to be father of Indian aviation sector. He started TataAirlines in 1932, as a

division of Tata Sons Ltd. TataAirlines became a public limited company on July 29 1946, under lhe

name Air India. As a part of the nationalization move, the airline was nationalized and state owned

carrier Air India was borne. Till 1991, state owned carrier served passengers. With the opening of

the economy in 1991 the industry witnessed a rapid transformation . First private Airline to start

operations in India was Jet Airways in 1993, followed by SahahaAirlines and many low cost airlines

were launched after 2000. The game changed as a result of the advent of low cost carrier (LCC) in

India in 2003, Air Deccan began low cost carriers (LCCs) in India.Air Deccan was borne as result of

the dream of entrepreneur Capt Gopinalh's to give an opportunity to every Indian to fly.

However, Air Deccan's poor service al almost every level and poorer on-time performance gave the

entire LCC industry a bad name. Media and general public used to ridicule and create mockery of


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310-103-1LCC and Air Deccan. The cost structure of the industry (high taxes on fuel} and lack of secondary

Airports meant that LCCs viability was under doubt.

This scenario changed as a result of entry of Indigo and SpiceJel as LCC and after KFA took over Air

Deccan and changed its LCC character. The perception issues towards LCCs have undergone a

dramatic shift. Indigo and Spice Jet are following the business model of successful LCCs in the west

and stuck to one aircraft configuratio n.To limit the obligation of flying Cat II and Cat Ill routes, the

twohave avoided flying direct between metro routes to a large extent. With reliable service and

new aircrafts, passengers across the country have been flying LCCs given the low fares.(Exhibit 2)

FSCs reacted to the change in market dynamics post arrival of LFCs by fragmented fare structure,

which resulted in the reduction in the average yields for FSCs. The growing popularity of LFCsforced FSCs to look out for acquisition of companies in a bid to increase the market share and

achieve pricing power. The FSC strategy was to acquire price sensitive customers and cater to the

entire spectrum of the market,as a result competitive landscape changed. (Exhibit 3)

Time Period of 2001- 2010

The total passengers carried by scheduled Indian carriers (domestic and international operation)

increased from 16.6 million in 2001-2002 to 43.4 million in 2007-08, posting a CAGR of 21.3 percent.

The average load factors of airlines increased from 62.2 percent in 2001-02 to 68.4 percent in 2006-

07. (Exhibit 4)

The growth is due to various factors such as buoyant economic environment and reduction in the

price points of travel due lo the advent of low fare carriers (LFCs). The average passenger load

factor (PLF) of Indian carriers which were 62 percent in 2001-02 increased to 68 percent in 2006-

2007. PLF rose due to the rise in corporate activity, increased demand from tourism sector and

significant growth in first time travelers who were attracted by low fares offered by LFCs.

Markel share of LFCs increased from 28.2 percent in 2005-06 to 46.7 percent in 2007-08 , largely due

to their predatory pricing policy of selling tickets significantly below costs. The fleet share of LFCs

incrased from 8.7 percent in 2002-2003lo 29.5 per cent in 2006-2007. LFC carriers had an

aggressive expansion strategy and expanded their fleet with higher proportion of leased aircraft.


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Funding availability and excitement about the airline industry led to entry of new players in the

industry, which witnessed passenger growth in 20-30% range. Passenger numbers grew at a CAGR

of 21.5% over FY05-09. The growth in the domestic market was stimulated by low fares. (Exhibit 5)

The Indian aviation was seeing its best time in 2006 by growing at the rate of around 30 percent.

This growth in aviation was unexpected and prompted all the airlines, includingAir India, to order

more airplanes to fulfill the needs of the growing Indian industry.However, this was did not sustain

much. Major expansion in capacity by all airlines resulted in shortage of skilled work force, rapid

increase insalaries and high levels of attrition.

Costs further increased due to congestion at airports .Surplus capacity and relatively easy availability

of funds resulted in fare wars to the detriment of the entire industry. The airline industry slipped intomassive losses and which further worsened as oil prices moved up. Following substantial losses in

2006-2007, the industry has undergone significant consolidation. Players thought to play the game

through co-operation route. Then came the slowdown in 2008 coupled with rising fuel prices, which

dashed all the hopes of the airlines.

On one hand demand was falling and on other hand the ticket prices were hiked across the board by

airlines companies from May 2008 due to sustained increased in ATF prices. This made the price

sensitive travelers to defer their travel or shift to other modes of transport like railways. However,

during the same time, the load factor of FSCs did not fall as much as LFCs because their passengers

mostly comprise business travelers, a segment that is relatively price inelastic. However, falling load

factors lead to route rationalization and right sizing capacities.

After that no frills airlines took the lead and with their low cost structure and lesser fares they almost

took the lead forcing their full service peers to fly that route. Kingfisher converted its capacity in the

full-service segment into low-cost arm Kingfisher Red. Jet already had a subsidiary Jet Konnect,

formed after acquiring Air Sahara, created Jet Lite and converted the capacity of Jet Airways to this

segment. In fact, low cost has become the buzz word and aviation industry in the country is seeingthe revival and recovering.

With the turnaround in mid 2009, the last six months of the year saw a huge jump in the number of

domestic fliers, finally bossing the tally to 4.45 million that is 8 per cent higher than 2008. More

importantly, it reversed the 5 percent negative growth in 2008. The airlines are currently managing to

fill around 80 per cent of their seats. According to estimates domestic traffic will increase by 25

percent to 30 percent till 2010 and flights grew by 69 percent from 2005 to 2008. The domestic


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310-103-1aviation sector is expected to grow at a rate of 9-10 percent to reach a level of 150-180 million

passengersby 2020.

Passenger traffic is projected to grow at a CAGR of over 15 percent in the next 5 years. The Indian

aviation sector has made rapid strides in the last five years. The challenges the industry is facing

stem from the fact that this is a relatively young industry and many new flights and airlines have been

launched during the past few years. However, there is immense need to create an environment

which is efficient , transparent and viable for operators and investors.7 Passenger traffic at the non

metro airports has witnessed around 30% plus CAGR during 2005 to 2008. (Exhibit 6)

No-frills airlines Indigo and Spice Jet are aggressively adding to their fleet while their full service

counterpartsAir India, Kingfisher and JetAirways are cutting capacity after tough couple of years ,indicating a difference of opinion in the industry over future prospects. Clearly times are slowly

returning to normalcy for the private airlines in the country. The domestic demand,as defined by pax

km, is expected to increase up to 60.3 billion km in 2012-13. 8 (Exhibit 7)

Environmental factors affect ing airline

indust ry in India

The industry typically sees the entry of new Airline companies during a period of high economic

growth which suppresses average ticket prices (yields) curtaining players from earning super normal

profits. Due to the entry of new companies, a price war erupts among players with load factors falling,

ultimately leading to considerable losses for airline companies. This period is prolonged with weak

players moving out the industry or merging with financially strong companies. Nonetheless, most

governments , bail out the inefficient state owned carriers. The airline industry is acutely sensitive to

external factors such as war, terrorist attacks, economic instability, government policies and

environmental regulations. The industry also gets affected by spread of epidemics like swine flu

(H1N1) or SARS leading to a significant decline in load factors due to reduction in travel and trade

activities . Business travelers reduce their air travel as a result of increasing use of videoconferencing and other voice and data transfer technology as cost cutting measures during downturn.

Fuel costs which form the largest portion of the cost structure of anAirtine are beyond the control of

the airtines. The rising fuel costs would force the industry to increase ticket prices to cover for the rise

in fuel costs, but in tum result in falling load factors and thus reducing profitability.


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310-103-1Business Model of LCC or LFC

A low fare carrier (LFC) or low cost carrier (LCC) is an airline that generally offers low fares by

eliminating traditional passenger services like meal and other services .The term low fare carrier or

low cost carrier originated because of its differential pricing as compared to FSC and because of its

low operating cost structure. Normally, LFC operate from non-congested Airports or secondary

airports which considerably increases the block hours; lowers turnaround time and better asset

utilization. The selling and distribution expense of LFC is low as majority of bookings happen online

through their own web portals that saves commissions to the intermediaries and reduces advertising

expenses and other marketing costs.

Business Model of Global LFCs

Global LFC carriers operate from secondary airports which are less congested as compared to hub

airports . Therefore, landing and take off is relatively quick as Aircrafts typically do not have lo spend

time waiting. This ensures faster turn around time and higher block hours for the carriers. The

aircraft utilization rate of LFCs is higher when compared to FSCs.

Unbeaten Global LFCs: How They Do It?

Flying to less congested secondary Airports

Point to point transit

Singlepassenger class

Single or dual type of Aircraft

Low fares compared to FSCs

Direct sales of tickets through their own webportals

Source:Crisil Research

Point to point connectivity of Global LFCs reduces the travel time for customers. Point to point transit

increases the block hours,and hence results in better Aircraft utilization.

Global LFCs typically have single or maximum dual type of Aircraft in their fleet. The uniformity in

aircraft helps Airline companies save material cost, as the players can avail of discounts by procuring

the material in bulk. Also players do not have to keep inventory of costly critical equipment for

different types of Aircraft which saves their inventory costs. The number of skilled manpower can be

utilized optimally due to uniformity in aircrafts .


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The majority of bookings for LFC happen through their own web portals which saves agent's

commissions and other related costs. Also marketing expenses of global LFCs are much lower

compared to FSCs as the area of operation is typically restricted by LFC. Typically global LFCs

believed in low cost marketing activities, buzz marketing and word of mouth in popularizing the

airlines and concept of low cost air travel.

LCC Model in Indian context

Low fare concept was introduced by Air Deccan in India in 2003. Within 2 years of Air Deccan's

launch in 2003-04, it had 12 percent of overall passenger traffic in domestic aviation market. The

growth of domestic passenger traffic was on a major upswing since the advent of LFC concept.

LFCs reduced the price point of an air ticket making it comparable with other modes of transport likefirst class AC fare of railways, there by creating a new segment of air travelers .This new segment

primarily comprised passengers belonging to the price-sensitive business class and air travelers who

pay from their own pocket. In fact, the advent of LCC in India was coincided with high economic

growth, which resulted in better affordability of Air travel. Due to popularity of LFC concept, which

was introduced byAir Deccan, many new entrants like Spice Jet, GoAir and Indigo adopted the low

fare strategy for their operations. There is always a curiosity to know the difference in the costs of

LCC and FSC and how they compete on costs.(Exhibit 8)

However, Indian LFCs are at significantly disadvantage as compared with global LFCs as they fly to

and from congested Airports, which reduces their aircraft utilization. The block hours for global LFCs

were in range of 11.5-12.7 hours, while the same for the Indian LFC was in range of 7.5-9 hours.

Indian LFCs Hy from the congested primary airports which reduces aircraft utilization due lo non

availability of runway for takeoffs and landing.

In India, nearly 72 percent of the traffic is handled by the top 6 airports which make Indian airports

highly congested and leads to higher turnaround times. Not only this, but the parking and landing

fees is also higher for Indian LFCs. Global carriers have low operating expenses due to higher blockhours, high load factors and higher average stage length. In addition to these, Indian LFCs have

lower scale of operation compared to global peers. The average stage length for carriers globally is

much higher in a bank of 950-1900 km, while the same for Indian carriers in the band of 655-1000

km.

Stage length refers to the lengthof theaverage flight of aparticular airline.Inotherwords,it is the distancetraveled by an aircraft from takeoff to landing.


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Indigo's Low Cost Strategy How do they do it?

In such a competitive industry, affected by a lot of external factors and some of the costs beyond

control, Indigo as LFC has been competing closely with FSCs and other LCCs. In fact, the market

share of the airline has been constantly rising.The airline's occupancy is better than others. Indigo's

load factor has been ahead of the industry average. (Exhibit 9) Indigo's performance comes at a time

when even giants of the industry are finding it difficult to function in this industry.

Aditya Ghosh, the low-profile president of Indigo says'

"There is no magic mantra and Indigo sticks to the business plan laid out some years ago.

There is no rocket science. We have staggered our growth and kept the model simple.We arean economy product and want to be better than the best amongst low-cost carriers."

On an average, an Indigo aircraft flies for around 12 hours a day, compared to eight to 10 hours

logged by most of the other Indian LCC competitors thus improving the block hours. Ghosh says

"The extra hours allow Indigo to undertake one extra Hight daily,which translates into more

seals and revenue."

To achieve this, the airline realized early that it has to ready its Aircraft for another flight quickly.

When started the airline, its first target was 30 minutes.Aviation experts used to make the fun of

Indigo to pursue this target since the norm for turnaround in the country was nearly an hour. Indigo

has beaten their own target, by bringing down the turnaround time in secondary cities to a mere 22

minutes and on many days it has achieved the target in less than 25 minutes in busy Airports like

Delhi. These are very vital numbers for any successful airline like Indigo, especially in Indian context.

Air Deccan founder G R Gopinath also expressed that improving asset utilization is a key element in

the low-coststrategy.

Ghosh says,

"We have broken up thejob into small parcels like loading, unloading and cleaning with time

targets and each of these is monitored. The learn is trained to focus on ilsjob. We have even

turned around an aircraft in 14 minutes."

Quotes of Aditya Ghosh used in this case are taken from Business Standard -The Strategist, "Fine strokes:Indigo's obsession for details when it comes to cutting flab is paying rich dividends" February 10,2008.


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310-103-1However, in order to achieve these numbers, Indigo does not hire staff liberally. The targets have

been achieved without spending a lot on pay of employees . Indigo employs about 100 people for

every Aircraft and this number is kept under a light control. Competitors SpiceJet and Go Air have

over 130 employees per Aircraft . Motivated and empowered people and better efficiency of staff is

what separates lhe airline in terms of lowering down people cost compared to other LFCs.

Indigo has employed other ways also to trim costs, which are simple but very effective in delivering

the promise of low fare with better flying experience. The airline was amongst the first customers to

choose the Select1 V2500 engines for its aircrafts , manufactured by Zurich-based IAE, ajoint venture

between Rolls Royce and Pratt & Whitney, which helps to cut fuel-burn by around 2 per cent. Further,

to reduce its cost of holding inventory of components, Indigo has done a tie-up withAir France under

which the French airline will stock components required by the Indian carrier. Indigo reduce the

inventory cost since, the same is not in the books of Indigo. These savings add up ultimately in

trimming down the overall costs of operation and thus improving the bottom line also. Ghosh

claimed once,

"Indigo's cost per available seat kilometer is 40 per cent to 50 per cent lower than full

service carriers and also the lowest amongst low-cost carriers."

Indigo is passionate about details for managing the weight of the aircraft. The light coat of paint it

uses on its Aircraft has reduced their weight by around 50 kg. It has ordered seats which weigh just

12.8 kg, a new record in India. All its aircrafts are cleaned and scrubbed thoroughly every day so that

garbage or dust does not raise its weight. Each of these functions may cul just a fraction of the flab of

a 42-tonne aircraft.9 But,put together, this reduction is very significant.

A lighter aircraft means lesser fuel burnt during flights. Jet fuel accounts for 55-60 per cent of the cost

of operations for Indigo. Thus, Indigo spends less than its rivals when its aircraft are flying in the

skies.According to KPMG analyst Mark D Martin,a lighter aircraft can cut an airline's operating costs

by as much as 10 per cent.

Further, the ground staffs have six minutes to de-plane all the passengers 10 minutes to load and

unload baggage. Most of the times, lhe ground staff is able to meet these targets . Indigo staff readies

the aircraft for another service within 22-25 minutes. In comparison, the average turnaround time for

most carriers is above 30 minutes. Of course, lhe faster the aircraft is turned around, the longer it can

Hy and earn money. This improves the block hours of the flight.


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Confronted with the unprecedented economic meltdown in 2008, most airlines have revisited their

business plans and cut aircraft orders or delay them,Indigo decided to stay with its original plan and

kept on adding new aircraft in its fleet. As it inducted a new aircraft every 6-7 weeks in 2008, Indigo

had the youngest fleet in the sky with an average age ofjust one year in 2009. New aircraft require

low expenses on maintenance.

Ghosh says

"The airline has a three-pronged strategy: keep costs lowest amongst low-cost carriers;

provide passengers best on-time performance,clean aircraft,affordable fare and reliability;

and grow cautiously without tinkering with its business model.

Rahul Bhatia, Chairman of Indigo prefers to treat business of airlines purely as a mode of

transportation and to make money. He said in a personal interview,

"Ihave seen this time and again. People tend to place their personal might behind their

airline and it becomes a mug's game of trying to outdo the guy next door.The game never

stops. People don't stop to remind themselves ifs just a mode of transportation and a

business.And before you know it,the caviar you serve is the best caviar in the world, the

lounge you have is one of the finest in the world. In the process you don't realize the kind of

costs you have added to your structure,"

Service Excellence

Despite Indigo, being a low fare carrier, focus on services is quite admirable. In fact, ever since

Indigo was launched, they respect customers.They don't belittle the customers,or talk down or insult

the customers . The philosophy of the Airline is "every customer is millionaire."And probably that

respect is what separates Indigo from the others.

This also ensures the highest cabin occupancy rate in the industry. Despite the absence of loyalty

programs, customers avail the services repeatedly . In fact, on-board and ground services are very

much appreciated by the customers. Indigo passengers even went overboard while appreciating the

services of the airline. (Appendix Ill)

Indigo attracts customers with more than just low fares. The most important part is its on-time

performance higher than its closest rival. This helped the airline gain customers, though it does not

have a loyalty programme. (Exhibit 10)


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Ghosh says

"We do not cancel or withdraw flights suddenly. We don't have a loyalty programme but 50 per

cenlof our fliers are repeat passengers."

Indigo has one of the highest percentages of pilots who are trained to fly under the conditions of

dense fog in Delhi and other northern cities during winter season, which ensures Indigo flights depart

and arrive on time in such conditions .According to the latest figures released by the civil aviation

ministry and the Directorate General of Civil Aviation, nearly 38 per cent of Indigo's pilots are CAT Ill

compliant or are able to fly under low visibility. In contrast, its competitors like Spice Jet or Jet Lite do

not have any pilot in that category. Even full service Airline Jet has only 22 per cent of its pilots

trained to fly under fog. This ensures that the basic need of any air traveler 'safe, secure and on timearrival' is met meticulously.(Exhibit 11)

In order to achieve high on-time performance, Indigo has set up a centralized operations control

centre which monitors the weather, anticipate delays and even provides advance information to the

ground staff in case an aircraft requires some repair or maintenance while it is airborne so that the

engineers are ready to rectify the problem and waste no lime once the aircraft lands. This proactive

approach helps in reducing the repair lime of the grounded aircraft and turnaround time.

This approach has helped the airline to get one of the best scores on technical dispatch reliability .At

99.97 per cent, it is the best not just in India but across the globe. This means that only nine out of

3,000 Indigo flights are affected due to technical problems. However some critics and experts point

out that Indigo's technical dispatch reliability of 99.97 per cent needs to be scrutinized. Such a high

figure means that only four Indigo flights in three months get cancelled due to technical reasons,

which seems unlikely and low in the eye of the experts.

In fact, Rahul Bhatia, owner of lnterGlobe Enterprise, which owns Indigo, is obsessive about detail,

customer service, quality services and believes in better customer experience. Even smaller details like the color of the napkins also matters and is detailed property. 10

Indigo Airline Being a low cost carrier, Indigo does not offer a complimentary meal service to its

passengers. However, it does offer a buy-on-board food service where items such as sandwiches ,

parathas, cookies, nuts, soft drinks and mineral waler can be purchased. Purified drinking water is

provided free of charge.11 Smartly dressed and highly motivated young staff serve Indigo passengers

with a smile and great enthusiasm .


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Competitors

Domestic airtine industry is divided into two broader categories. The first one is, the government

owned and operated national carrierAir India and the rest by the privateAirtines. Among the private

airlines JetAirways and Kingfisher Airtines have full service as well as low cost flights. Other private

Airtines -Spicejet, Indigo,GoAir operate low cost flights .Jet Airways low cost operations are Jet Lite

and Jet Konnect and Kingfisher's low cost operations is Kingfisher Red.

JetAirways & Jet Lite

Jet Airways was incorporated as an air taxi operation in april 1992 and began its commercial airtine

operations in May 1993. Naresh Goyal, promoter of the company owns 80 percent of the stock

through jet's parent company Tailwinds Ltd. Jet Airways is listed on stock exchanges. Jet Airways

does not own its brand. The brand is owned by Jet Air Enterprises Ltd., a separate company

substantially owned by Naresh Goyal, which licenses the brand to theAirtine in return for an annual

payment.

Jet took over Air Sahara inApril 2007 for Rs. 14.5 billion after a long legal battle and re-branded the

Airtines as Jet Lite (Eartier Sahara Airlines.) Jet Lite is a wholly owned subsidiary of Jet Airways .

Sahara Airlines was incorporated in 1991 and began its operations in December 1993. Sahara

Airtines was re-branded as Air Sahara in October 2000.

National Aviation Company of India Ltd. (NACIL)

NACIL is owned by Government of India and is headquartered in Mumbai. The company was created

to facilitate the merger of two state-ownedAirlines in India, namely Air India and IndianAirtines . Both

theAirlines are operating under the brand Air India for domestic as well as international operations.

Air India was founded by J.R.D. Tata in 1932 as Tata Airtines, a division of Tata Sons Ltd. tata

Airtines became a public limited company on July 29 1946, under the nameAir India. The Airtine was

nationalized later on. In 2004, Air India launched a wholly-owned low cost Airtine called Air India

Express.

Kingfisher and Kingfisher Red

Kingfisher, brain child of Vijay Mallaya, UB group, commenced operations in May 2005. Kingfisher

Airtines has code sharing agreement with Continental and Emirates Airlines. Kingfisher started its

international operations in September 2008.


17/33

310-103-1KingfisherAirlines' parent company United Breweries acquired 26 percent of DeccanAviation Ltd. for

Rs. 5.4 billion. Subsequently ,Air Deccan was merged with Kingfisher Airlines. The low cost carrier

'Air Deccan' has been re-branded as Kingfisher Red.

Paramount Airways

Paramount Airways has been established by Madurai - based textile company Paramount Group.

Paramount is a regional carrier having prominent presence in South India. Paramount started its

operations in October 2005. It is a business class carrier and majority of ils operations are

concentrated in non-metroAirports in south India,thereby avoiding congestion.

Spice Jet

Spice Jet, which commenced its operations in May 2005, is a low fare Airline based in New Delhi.

Spice Jet was earlier known as Royal Airways (formerly known as Modiluft). The majority shareholder

of Spice Jet is lstithmar PJSC, which has a 13.4 per cent in the company. The company has tied up

with KLM for maintenance support and with Navitaire for reservations and revenue management.

GoAir

GoAir, a Mumbai based low fare Airline, was established in June 2005 and started operations in

Novermber 2005. Go Air is wholly owned by the Wadia Group, owners of Bombay Dyeing and

Britannia Industries. The Airline has a strategic tie-up with Singapore Airlines Engineeiging Company

for its Aircraft maintenance and engineering requirements. It has also tied up with Radixx

International for passengerbookings and revenue management.

Indigo What next?

Aviation sector experts are quite impressed with Indigo's performance. Even some analysts say that

Indigo has the potential to become a global low-cost carrier. Kapil Kaul,Head Operations, Centre for

Asia PacificAviation in India commented on performance of airlines and said in 2009 "If Indigo has

the cash to sustain itself for another two years, Indigo surely will be one of the big players in the low

cost space globally."

Should the airline raise money through Initial Public Offering (IPO) mode for further expansion? "The

fundamentals of the aviation business are not right to go to the market. The industry is yet to mature.

I'm sure the rest of the industry knows better, but before we go to the market, I'd like to be making

money," Rahul Bhatia said two years before and explained that a stronger balance sheet will help him

get full value.Is this the time to unlock that value? Is this the lime for raising money through IPO?


18/33

310-103-1

At the moment, little is known about Indigo's financial health because it is not listed on the stock

exchanges and, therefore, does not have to put its profit and loss statement in the public domain

every quarter. However, recent information about estimated profit gives some comfort, and endorses

the that its operational efficiencies and strategic decisions are generating the surplus. Indigo has

diligently avoided the super fast growth strategy of Air Deccan.

Ghosh says

"We consolidate in a station before we go to new ones,gain the loyalty of the passengers

there and offer more flights."

As quoted by the chairman of Indigo about the hotels and about hotel ventures "In India, we have

either the Indian version of five-star properties or really shaggy guest houses.The burgeoning middle

class is crying for a quality offering which reflects value for money." Rahul Bhatia sees himself cross

selling lnterGlobe hotels with Indigo airlines, as the demographic audience for both is identical.

Should the airline get into other businesses which bring in synergy to Indigo and add value to

lnterGlobe's businesses? The airline which continued to surprise people with its performance and

service with the limited operations , whether the same would continue with expansion whether

domestic or international,is a big question in front of Indigo.

However to succeed in the next altitude, the airline will have to ensure higher load factor. Globally,

LFCs are able to offer lower ticket prices because of significantly higher cost-efficiencies .These cost

efficiencies are achieved by LFCs because they primarily operate from non-congested airports,which

increase the aircraft's utilization in terms of higher block hours and reduce the turnaround time.

However, with the larger Indian airports operating above their rated capacities, there is congestion for

parking and landing of aircrafts , significantly reducing asset utilization. Also, ATF prices at Indian

airports are very high when compared to global Airports due to a higher tax structure. Hence, the

Indigo with a business model of LFC may find difficult to survive in the long run if the strategy withoperational activities is not crafted and executed well. However, Indigo would see a new era when

there is reduction in congestion at airports and duties on ATF are reduced.

Efficient players would remain profitable over the years. Those players, who are able to improve the

operational efficiency through the cost reduction and yield improvement initiatives, would survive and

stay float. Those who can't will have to consolidate with the relatively stronger players. The industry


19/33

310-103-1has already seen the first round of consolidation. Coming few years would be decisive for the Indigo

as a low fare carrier and its 'power of one' strategy .

Questions for Discussions

1. What are the strategic decisions taken by Indigo discussed in the case?2. Discuss the cost drivers, revenue drivers, and key success factors of a low fare carrier in

Indian context.3. What are the operational strategies of the company discussed in the case?4. Which are the environmental issues discussed in the case?5. Will Indigo's flight last in the turbulent market?6. Should the company venture into other businesses which can help to cross-sell other

services like hotels etc?7. As a leader,what would be your future strategies for the growth of Indigo?


20/33

310-103-1

Exhibit 1

Market Share of Domestic Airlines - MARCH 2009

Mar-09

IndiGoNACIL(I)

Paramount

2%

Spicejet

12% JetA irways18%

Kingfisher

27%

Market Share of Domestic Airlines- MARCH 2010

Mar-10

Kingfisher,23%

Jet lite,7%

Paramount,1%

lndiGo, 15%

JelAirways, 19%

(Source:Director General of Civil Aviation DGCA)


21/33

Market share (in %) of FSC & LFC in India during 2005-06 to 2007-08

2005-06 2007-08

LFC

78%

LFC

47%FSC

53%

(Source:Crisil Research)

Exhibit 3

Market Share of FSC vs.LCC

65

--FullServiceCarrier

60--LowCostCarrier

55

50

45

40

35

2006 2007 2008

(Source:CLSA Asia Pacific Markets)


22/33

Domestic passenger traffic growth since arrival of LFC (Passengers in millions)

so

45

40

35

30

25 -----

20

15

10

5

0

(Source:CRISIL Research)

Exhibit 5

% Break up of fleet between existing & new players:200304 and 200607

2003-04 2006-07N"w

---.::::- Plavers

-- 2%

(Source:CRISIL Research)


23/33

310-103-1

39%

35%

Domestic passenger handled at non metro airports (Passengers in millions)

2005-06 2006-07 2007-08 CAGR %Ahmedabad 1.44 2.09 2.46 31Goa 1.27 1.81 2.14 30Pune 0.91 1.53 1.64 35Cochin 0.73 1.13 1.57 47Guahati 0.72 1.07 1.34 36Coimbatore 0.56 0.85 1.01 34

(Source:Airport Authority of IndiaAA I)

Exhibit 7

Fleet Size Expansion Mode

Mar05 Mar06 Mav07 Au 07 Nov07 Jan 08 Jan 09 Apr09Air India 37 38 41 39 38 40 34 40JetAirways 42 53 57 65 70 77 88 86Sahara 22 29 28 24 24 24 24 23

Air Deccan 16 29 41 43 43 43 0 0Spice Jet 5 11 12 17 17 19 19Kinofisher 11 28 31 34 38 83 79Go Air 3 5 4 5 6 7 8lndiGo 9 11 13 16 19 20

(Source: CLSA Asia Pacific Markets)

Exhibit 8

FSC vis.LCC:Cost Metric

5

(Source: CLSA Asia Pacific Markets)


24/33

Cabin Occupancy (January 2010)

84.00

82.00

80.00

78.00

76.00

74.00

72.00

70.00

Cabin Occupancy

83.00

68.00

Indian Jet Airways Jet lite Kingfisher GoAir Spicejet lndiGo

(Source:DGCA,Cabin Occupancy expressed in percentage)

Exhibit 10

On-Time Performance (OTP) December 2009

lndiGo

Kingfisher

GoAir

Spicejel

Jet Airway s

Indian

Jetlite

65.0 70.0 75.0 80.0 85.0


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On-Time Performance (OTP) January 2010

90.0 82.5

80.0

70.0

60.0

50.0

40.0

30.0

20.0

10.0

0.0

71.8 71.5

Kingfisher lndiGo GoAir JetAirways

Spicejet NACIL(I) Jetlite

%of Total Operations OnTime Performance (%)

Overall OTP- 71.3 % (Industry Average)

(Source:DGCA, % based on data of DGCA)

Exhibit 11

Flight Cancellation - January 2010

Jetlite 12.6

Jet Airway s

GoAir

Spicejet

NACIL(I)

lndiGo

0 2 4 6 8 10 12 14

Cancellation Rate (%)

Overall Cancellation Rate - 5.7 % (Industry Average)

(Source: DGCA, Flight Cancellation expressed inpercentage)


26/33

Appendix I

Indigo Fleet

Aircraft Airbus A320-200Total in Service 34Seats 180Engines IAE V2500Cruising Speed 0.82 MachLength 37.57m.Height 11.76 m.

Wheel Base 12.65 m.

Maximum Takeoff Weight 73.5 lonnesMaximum LandingWeight 64.5 tonnesMaximum FuelCaoacitv 23,860 Litres

http://book.Qoindiqo .in/skyliqhts/cqi-bin/skyliqhts.cqi?moduie=C3&paqe=FLEET accessed on 23.02.2010

Destinations within India (As On July 2009)

State CitvIAirportAndhra Pradesh Hyderabad - Rajiv Gandhi International Airport

Assam Guwahati - Lokoriva Gooinath Bordoloi internationalAiroort DibruqarhBihar Patna - Lok Navak Jayaprakash AirportDelhi Indira Gandhi International Airport Hub

Goa Goa - Dabolim Airport

Gujarat Ahmadabad - Sardar Vallabhbhai Patel InternationalAirportVadodara - Vadodara Airport

Karnataka Bangalore - Bengaluru International Airport

Kerala Koehl- Cochin InternationalAirport

Maharashtra Mumbai - Chhatrapati Shivaji InternationalAirport HubNagpur - Dr.Babasaheb Ambedkar international AirportPune -Pune InternationalAirport

Manipur Imphal- Tulihal AirportOrissa Bhubaneswar - Biiu PatnaikAirportRajasthan Jaipur - JaipurAirportTamil Nadu Chennai - Chennai International AiroortTripura Aqartala - Sinqerbhil Airport

Uttar Pradesh Lucknow -Amausi AirportWest Benqal Kolkata - Netaii Subhash Chandra Bose InternationalAirport Hub
http://book.qoindiqo/http://book.qoindiqo/http://book.qoindiqo/http://book.qoindiqo/http://book.qoindiqo/


27/33

Appendix II

Management Tearn

Mr.Aditya Ghosh President

Mr. Ghosh sits on the Board of lndiGo and was key to its launch. As the President of lndiGo,Mr. Ghosh has the overallmanagerial and operational responsib ility of lndiGo. Mr. Ghosh is also a key member of the Leadership Team of thelnterGlobe Enterprises which is the body that is responsible for the management of the Enterprise's various businesseswhich spans a wide range of activities while staying true to the core competency of the travel domain. Mr. Ghosh plays aninstrumental role in the management of the Group's affairs and advising on and formulating growth strategies of thelnterGlobe Group. Prior to assuming his role as the President of lndiGo, Mr. Ghosh served as the General Counsel for theentire lnterGlobe Enterprise. Mr. Ghoshisa member of the Executive Council of the Federationof Indian Airlines.Mr.Riyaz Peennohammed,Chief Financial Officer

r. eermo amme o ne n o n arc an s respons e or nance. ror to onng n o Mr.Peermohammed was Senior Vice President-Corporate Treasury for EmiratesAirlines andwas responsible for treasury,corporate finance, management accounts , budgeting,cost controland business finance.Previously Mr. Peermohammedheld the position of Corporate Treasurer of the Emirates Group and was the Aircraft Financing Manager responsible foraircraft acquisition and lease arranging. Mr. Peermohammed holds a Bachelor of Science from Bombay University, is aChartered Accountant and a Chartered FinancialAnalvst.

Mr.Sanjay Kumar,Chief Commercial Officer

Mr. Sanjay Kumar joined lndiGo in January 2007 and is responsible for commercial. In an airline career

spanning over 16 years with leading domestic airlines in India, Mr. Sanjay Kumar has worked on variousassignments in the area of Business Planning,Marketing&Sales,Distribution,Product &Service Development

and Media Relations. Prior tojoining lndiGo he was Vice President - Strategy & Planning for SpiceJet.Previously Mr. Sanjay Kumar worked with Air Sahara. He holds a Master's degree in Economics, a Post

Graduate diploma in Business Administration and Bachelor of Law from Meerut University.Captain K P S Nair,Chief of Fl aht Safetv

Capt. Nairjoined lndiGo in October 2005 and is responsible for safety and compliance . Prior tojoining lndiGo Capt. Nairwas Deputy Director of Flight Crew Standards and Operations in the Directorate General or Civil Aviation and wasresponsible for the development of operational policies and flight crew training programs. Previously Capt. Nair was thecoordinator of the safety oversight program and was responsible for flight safety measures in civil aviation. Capt. Nair hasserved with the United Nations and the African Development Bank asAir Transport consultant in Africa. Previously Capt.Nair worked for theAirpor ts Authority or India as an Aerodrome Officer,Air Traffic Controller andAir Safety Officer. Capt.

Nair holds a Bachelor of Arts from Osminia University, is a qualified Flight Navigator Examiner and commercial pilot. and isa member of the Aeronautica ISociety or India.

Mr. Sanieev Ramdas,Vice President: Customer Services &Airport OperationsMr.Ramdasjoined lndiGo inOctober 2005 and is responsible for customer services and airport operations. Prior tojoininglndiGo Mr. Ramdas was Director of Airport Services at lnlerGJobe and managed the airport operations of lnterGlobe's airlinepartners. Mr. Ramdas has been responsible for airport operations, aircraft handling, customer services, emergencyresponse procedures , safety, contract negotiations,GSE purchasing,service level agreements and cargo. Previously Mr.Ramdas worked for Cambala Aviation Pvt. Ltd., Scandinavian Airlines, Tarom, Turkish and Delta Airlines. Mr. Ramdasholds a Bachelor of Commerce degree (with Honours) from Delhi University and a Post Graduate diploma in PersonnelManagement and Industrial Relations.

Mr.S.C.Gupta,Vice President:Engineering

Mr. Gupta joined lndiGoinSeptember 2005and isresponsible formaintenance and engineering. Prior lojoining lndiGo Mr.Gupta was the Director of Engineering for IndianAirlines andwas amember of theaircraft purchasing team. Previously Mr.Gupta was Director of the Jet Engine OverhaulDivision and was responsible for gaining FAA approval for engine overhaul

and repair. Prior to this appointment Mr.Gupta was General Manager -Engineering for the Northern Region where hemanaged the induction and maintenance of IndianAirlines'A320 fleet. Mr. Gupta joined IndianAirlines as a GraduateEngineer. Mr. Gupta holds a Bachelor of Technology degree in Mechanical Engineering from the Indian Institute OfTechnology,a Master of Business Administration from the Faculty of Management Studies, University Of Delhi and is alicensed aircraft enqineer.

Mr.K.S.Bakshi,Vice President: Human Resources

Mr. Bakshi joined lndiGo in December 2006 and is responsible for human resources. Prior tojoining lndiGo,Mr.Bakshiwas the General Manager -HR for Bharti AirtelLtd.,Broad Band & Telephone Services -NCR in Delhi. He has over 14years experience in human resources management,with a special emphasis on building and improving HR processes andsystems and on the acquisition, management, development and retention of talented employees. He worked on variousprojects intheareas of leadership competency ,employee engagement andmanaging performance. Mr Bakshiholds aPostGraduate DiplomainPM&IRfromXLRI,Jamshedpur.


28/33

Mr. Vineet Mlttal,Vice President: Financial Plannina & Analysis

Mr.Mittaljoined lndiGo in October 2005 and is responsible for financialplanning,taxation,accounting andpurchasing.Priorto joining lndiGo Mr. Mittalwas a project manager at lnlerGlobe responsible for lhe lndiGo project. Previously Mr. Mittalworked for Royal Airways as Revenue and MIS manager and was responsible ror revenue auditing and analysis. Prior tojoining RoyalAirways Mr. Mittal worked with DLF Universal as Deputy Manager -Accounts and was responsible foraccount ing procedures, taxation compliance and capital management. Mr. Mittal began his career as a statutory andgeneral auditor wilh Ernst and Young.Mr. Mittal holds a Bachelor of Commerce from Hansraj College,Delhi University andis a Chartered Accountant from lhe Institute or chartered accountants of India. Mr. Mittal is also a graduate of cos!accountancy fromthe Institute orcost and workaccountants of India.

Captain Saleem Zaheer,Vice President:Flight Operations

Capt. Zaheerjoined lndiGo in December 2009 and is responsible for flight operations .A graduate of the National DefenseAcademy and theAir ForceAcademy ,Capt. Zaheer was a fighter and transport pilot, and a Qualified Flight Instructor in lheIndian Air Force.After leaving in 1984, Capt. Zaheer flew the Learjet and Hawker 700 businessjets in the USA, beforejoining UnitedAirlines in 1990. He spent 13 years with United flying lhe Boeing 727,737,757, 767,777 and theAirbus 320in both domestic US and internationa loperations .He joined AirArabia in Sharjah, UAE in March 2004,where he served asChief Pilot and Poslholder Flight Operations, and then as Director, Operations & Engineering of flyyeti.com, theirjointventure airline in Nepal. Capt. Zaheer has flown over 14,300 hours in his 35 year aviation career.He is an Airbus qualifiedType Ralina Instructor {TRI lwith over 3900 hours incommand of the Airbus 320.

Mrs. Suman Chopra,Vice President: lnflight ServicesMrs. Chopra joined lndiGo inApril2006 and is responsible ror inflight services and cabin-crew management. Prior tojoining

lndiGo Mrs. Chopra was General Manager of inflight services, training and administration with Air Sahara. Herresponsibilities included setting up inflight operations at rourlocations and a training centre at Delhi. She also formulated aQuality Team for measuring the performance or cabin crew and service consistency. Previously, Mrs.Chopra was theQuality Control Purser for Emirates where she was involved in developing service standards. Mrs. Chopra began heraviation career as an inflight crew member for Indian Airlines.Mrs.Chopra holds an Honours Degree in Food and NutritionfromDelhi Universitv and hasover 23 years exoerience indomestic and international infliohtservices.Mr.Amit Khandelwal,VicePresident:Planningand Revenue Management

Mr.Amit Khandelwal joined lndiGo in February 2007. Inan airline career spanning almost 15 years,Mr.Amit Khandelwalhas worked on various assignments inthe areas or Business Development, revenue strategy,and programmanagement inthe aviation industry,consulting & IT-enabled services. Prior tojoining lndiGo, he worked withGoAir, UnitedAirlines,PROSRevenue Management, Inc. and NllT. He holds a B.E. from BITS, Pilani and an M.S. {Operations Research &Manaoementl rromthe University orTexas.

Source: goindigo.in


29/33

Appendix Ill

Someof the selected Testimonials

P. Joshi, October 4, 2009: ...Any airline may have good airplanes, may give good food . But this type ofservice is very rare. Iam sure that your airline has a very bright future. Once again,thank you very much for theco-operation extended lo me .As well please convey my special thanks to Mr Shubhendu Sarkar,Kolkata airport..."

Aravind Karnath,September 29,2009: "...Just wanted to appreciate the good work put up by the lndiGo team.The staff (ground and in-flight) was courteous and professional. It was really refreshing to see so much ofemphasis on on-time performance,which I think, is a rarity!Iwill certainly fly only lndiGo in future if there areindigo flights available to my destination cities.Great Job!!! ..."

Nandakumar CD,September 29,2009: ...Itraveled on your airline many times now, and wish to share mypositive feedback . Each time I traveled, Ihave been extremely satisfied with your quality of service, staff

courtesy,cleanliness and punctuality. Ican sum up my view about your airline as 'No NonsenseAirline thatgives good value for money in terms of service quality, treating passengers with dignity".On the whole youhave anexcellent product. Keep it up..."

Amit Nagpal,October 2,2009: ...This was the third time that Ihad flown lndiGo and I have to compliment youon your excellent services,the flights are on time like I've never experienced, the staff is very courteous, thefood is excellent and my favorite part is the seats, my lndiGo experience has always been extremelycomfortable. From now on lndiGo is my preferred choice airlines and you can count on me to spread theword ..."

Krishnan G Iyer,25thAugust 2009: ....Wishing lndiGo a very Happy Birthday.I started flying with lndiGo fromthe day Mumbai/Baroda sector was introduced and has taken more than 80 flights till today ...

SAMIR D SHAH,4thAugust, 2009 :...Iwas highly impressed by the helpfulattitude of the cabin crew.Ifoundthat they were agile and always ready to help the passengers e.g. a special safety instruction to a couple

travelling with kids, assistance to a family probably travelling for the 1st time, flight announcements etc.. Mycompliments to your entire team and please carry on the good work..."

Bhawani shankar Chauhan, 5th August,2009 :...It is matter of great pride that lndiGo is celebrating it's 3rdbirthday.Despite global recession and high atf prices, lndiGo has stepped up lo the challenge in industry due toits customer friendly approach. Best wishes...

M.V.VENKATESH, September 10,2009: "...This is very first time I travelled in INDIGO. I had a differentopinion about the LOW-COST Carrier, but the experience is laudable. Right from booking Ticket till I reachdestination, the feeling I got its wonderful. Keep Serving with cent percent commibnent. Healthy, Happy,Successful Living and Serving..."

Dr Reuben Carr, 5thAugust, 2009: .... Ilive and work in the UK and from personal experience I know thislevel of service and assistance would not be available for internalflights within the UK by the operators here.This has made my think very highly of lndiGo and would strongly recommend this airline lo any of my friends orcolleagues if they plan to travel around India..."

Mervyn Fernando, September 9,2009: "...Iwant to thank the entire lndiGo staff at Pune airport and also thegentleman who ever trained these gentlemen to this very high level of customer care. They minimize mytension and assisted me in such a way Ifelt like that Iwas dealing with my own children. True to their word Iwas made lo pay the minimum and was boarded with minimum fuss.They made me determine that lndiGo willbe the first choice for my family and me in the future.


30/33

Please keep up the good work and May God bless those very pleasant boys and girls of Indigo crew at Pune

Airport...:

Dr PBN Choudary,October 8,2009 : "...At the outset, Iwish to congratulate lndiGo on being at the helm of

affairs of a truly outstanding professional airline company. I would like to take this opportunity to cite anexample of exemplary professional attitude and approach that was displayed by your Mr. Saara Nagaraj. Itravelled from Kolkata to Hyderabad on Indigoflight 6E 352on 7th October, 09. Onthe onboard shopping cart,Ipurchased a barbie pencil box for my niece but left it in the front seat pocket while deplaning. Icould only recallthe box while driving back to my house. However,to my surprise Ireceived a call from Nagaraj citing the boxwhich was left in the aircraft. Ithanked him for calling back on the same.Today,Nagaraj handed over the box in my office. This is indeed a true reflection of highest levels of Professionalism and commitment to extendworld class service to customers .While the cost of the box is not very high,Iwas truly impressed and amazedat the way your staff demonstrated the concern of calling back and taking the pains to handover the box.In thiscontext, Iwould like to extend my hearty and sincere compliments and commendation to Nagaraj and of coursethe entire family of Indigo.Am sure,such Professional display will surely take Indigo to even greater heights inthe nearfuture..."

Dilip Sequeira,September 22,2009: "...The captain of the Hight was just excellent. We left Goa late due to the

rain and the ATC not giving us permission even then he landed-us on time in Mumbai, I could attend a friendswedding with no problem that same evening. But what was amazing is that the captain made an announcementto the passengers that there was going to be some turbulence and that gave us time to prepare. The friend Iwas with is very scared of flying,but the captain's voice put her at ease.Please tell him thank you on my behalf.Idid chat with him when leaving at Mumbai. But Iwant to tell him,greatjob.You guys are my favorite airline inIndia;there is no one who can get me home on time. Ido not mind paying Rs.100 for the emergency exit seatsince you make the flight home,worth it. Thank you so much for the great service and the best servicing Ihaveseen in the Indian skies.If you would like to get in touch with me at any point. For Indigo Ican stop and maketime,anytime ..."

(Source: http://book.goindigo.in/skylightslcgi -in/skylights.cgi?module=C3&page=TESTMONIALaccessed on 23.02.2010)
http://book.goindigo.in/skylightslcgihttp://book.goindigo.in/skylightslcgihttp://book.goindigo.in/skylightslcgihttp://book.goindigo.in/skylightslcgihttp://book.goindigo.in/skylightslcgi


31/33

Appendix - IV

Vocabulary of Airline Industry

Available Seat Kilometers (ASKM): Product obtained by multiplying the number of passenger seats in anaircraft by the distance flown in kilometers is termed as Available Seat Kilometers.

Block Hours:The airborne time period from when an aircraft leaves the source airports to its arrival to thedestination airports is defined as block hours.

Capacity:The maximum number of aircraft and available seats which can be accommodated or contained.

Earnings before interest, taxes,depreciation, amortization and rentals (EBITDAR):The earnings of airline

companies before interest,tax, depreciation,amortization and rental on aircraft is termed as EDITDAR.

Hub and Spoke system:A system for utilizing aircraft that enables a carrier to increase service options at allairports encompassed by its system. It entails the use of a strategically located airport (the hub) as a passengerexchange point for flights to and from outlying towns and cities (the spokes).

Revenue Passengers :The number of revenue passengers refers to the fare paying passengers traveling onthe aircraft.

Revenue Passenger Kilometers (RPKM): The product derived by multiplying the number of fare payingpassengers by the distance in kilometers flown is termed as Revenue Passenger Kilometers.

Passenger Load Factor (PLF):Passenger Load Factor is ration of RPKM to ASKM.It is expressed in percent.

Passenger Service Fee (PSF): A tax authorized by government,assessed by airports and collected by airlines(on behalf of airports) as an add-on to the passenger airfare.

Operating Expense per ASKM: The average amount of operationg expenses incurred per kilometer,typicallymeasured in Rs. Per available seat kilometer.

Operating Revenue per ASKM: he average amount of revenue received by the airline per kilometer ofcapacity available.

Yield:The average amount of revenue received per revenue passenger kilometer (RPKM),net of taxes.


32/33

Appendix IV

Terminology of Strategic Management

Strategy: A company's strategy consists of the competitive moves and businsess approaches that managersare employing to grow the business, attract and please costomers, compete successfully,conduct operations,and achieve the targeted level of organizational performance.

Strategy is the creation of a unique and valuable position, involving a different set of activities.Strategy requiresthe manager lo make trade offs in competing - to choose what to do and what not to do.Strategy involvescreating "fir among a company's activities. (Porter M,"What is Strategy?,Harvard Business Review,Nov-Dec.1996)

Business Model: A company's business model explains the rationale for why its business approach andstrategy will be a moneymaker.

Business model consists of four interlocking elements customer value proposition (value creation), profit

formula (value capture), key resources and key processes. (Johnson M et. al. "Reinventing Your BusinessModel", Harvard Business Review,December 2008

Strategic Plan:A strategic plan lays out the company's future direction,performance targets and strategy.

Driving forces: Driving forces in an industry are the major underlying causes of changing industry andcompetitive conditions -they have the biggest influence on how the industry landscape will be altered. Somedriving forces originate in the outer ring of macro environment and some originate from the inner ring.

Key Success Factors: Key success factors are the product attributes, competencies, competitive capabilities,and market achievements with the greatest impact on future competitive success in the market place.

Benchmarking: Benchmarking is a potent tool for learning which companies are best at performing particularactivities and then using their techniques (or "best practices") to improve the cost and effectiveness of acompany's own internal activities.

Low cost Strategy: A company following low cost strategy tries lo achieve a competitive advantage bylowering overall costs than competitors by doing a betterjob than rivals of performing value chain activitiesmore cost efficiently or revamping the entire value chain lo eliminate or bypass some cost-producing activities.

Strategic alliances: Strategic alliances are collaborative arrangements where two or more companies joinforces to achieve mutually beneficial strategic outcomes . The best alliances are highly selective focusing onparticular value chain activities and onobtaining a particularcompetitive benefit. assenger Load Factor is rationof RPKM toASKM.It isexpressed in percent.

(Source: Thomson,Strickland Et.Al., (2007) "Craft ing and Executing Strategy -The quest for CompetitiveAdvantage", Special Indian Edition,16th Edition,TMH: New Delhi)


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References

1Business Times,The Times of India,'Indigo may take IPO route lo raise Rs. 1500-2000 Crore'16111April,20102

Company website3TheEconomicTimes'Air Traffic Still on Double-digit Growth Track",16111April,20104Outlook businessApril3,2010 page 145TheEconomicTimes,16\h march 20106ResearchReport of CLSA AsiaPacific Markets, Indian Aviation Sector Outlook,01/07/20097 Business Standard,SpecialReport,Achieving Milestones, IndianAviation 2010,March 2010

aPrivate Airlines areon the roadto recovery,Business Standard,SpecialReport,Achieving Milestones,IndianAviation2010,March 20109Business Standard -The Strategist, 'Fine strokes: Indigo's obsession for detailswhenit comes to cutting flab ispaying richdividends'lndigo:Fine Strokes, February 10,201010Business Standard - Lunch with BS,'His Father's Son",8th January,2008,reported byAnjuli Bhargava11http://book.golndigo.in/skylight s/cgi-bin/skylights.cgi accessedon 23.02.2010
http://book.gol/http://book.gol/http://book.gol/http://book.gol/http://book.gol/http://book.gol/http://book.gol/

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Service Operations Indigo Case Study

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