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Comparative Analysis of Indigo and Singapore Airlines & Air Asia Alliance
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o MAJOR INDUSTRY PLAYERS Delta Airlines , United Airlines, Southwest Airlines, American Airlines USA Lufthansa Germany Southern Airlines - China o MAJOR AIRCRAFT MANUFACTURERS Air Bus Boeing
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INDUSTRY FORCES Threat of New Entrants Power of Suppliers Power of Buyers Availability of Substitutes Competitive Rivalry OTHER FACTORS Labor Fuel Cost Weather Economy Regulation
-Financial Policy - Accounting -Regulatory Compliance - Legal - Community Affairs Flight, route and yield analyst training Pilot Training Safety Training Baggage Handling Training Agent Training Product Development Market Research In-flight Training Baggage Tracking System
Computer Reservation System, In-flight System Flight Scheduling System, Yield Management System
PROCUREMENT
INBOUND LOGISTICS
OPERATIONS
OUTBOUND LOGISTICS
SERVICE
Adapted from Competitive Advantage: Creating and Sustaining Superior Performance, copyright 1985 by Michael E. Porter.
2001 Aviation Turbine Fuel (ATF) prices decontrolled 2003 Air Deccan as Indias first LCC 2005 Kingfisher, SpiceJet, Indigo Go Air, Paramount start operations 2007 Industry consolidates; Jet acquired Sahara; Kingfisher acquired Air Deccan 2010 SpiceJet starts international operations 2011 Indigo starts international operations, Kingfisher exits LCC segment 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 ATF and abolition of taxes FDI proposal for allowing foreign carriers to pick up to 49% stake under consideration
Intra-Industry Rivalry
Rivals: Spice Jet, Go Air, Indigo (LCCs) Jet Airways, Air India (Main Airlines)
Inadequate Infrastructure
Poor financial health of most airlines Highly competitive & Price Sensitive traveller base
More deviations for traffic and weather means burning more fuel and more crew costs for the airline.
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
Indigos 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
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
E-Ticketing
Reduces maintenance and inventory cost Lower charges, lower turnaround time due to less congestion Improves aircraft utilization by reducing waiting time at airports More seats per flight so spread costs over a larger base Helps to keep the cost and hence the fares low. No frills such as free food/drinks, airport lounges etc. Reduces employee cost and leads to higher employee productivity Emphasis on direct sales of ticket through internet to avoid fee and commissions paid to travel agents Primarily on board Sales. Provide alternate source of revenues helps to reduce break even PLF.
The key ingredients in effective cost leadership strategy are : Economies of Scale Access to the capital Efficient Supply Chain Superior Management Use of Technology A low cost base (labor, materials, facilities)
Indigos Positioning
Price & Product Attributes Economy oriented Customer Service Processes On time every time Strong & Organized Service Distribution & Delivery Systems
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.
1972 MALASIAN SINGAPORE AIRLINE was split into SINGAPORE AIRLINES 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
Technological factors
1. IT for the benefit of customers 2. Productivity suite for the passengers 3. Technologically advanced aircraft (longhaul)
Legal
1. Restriction in flying over or in someone flying zone 2. All essential licenses to fly in a particular route 3. Singapore airlines has flying rights over 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
Weakness 1. Not good at horizontal integration with a few failed acquisition. 2. Considerately high spending on marketing 3. Rely heavily on airline aliances
Opportunities Threats 1. Large customer base to exploit in 1. Fuel prices region 2. Many players changing model to 2. Increase in demand of trans-pacific low cost cargo 3. International political environment 3. Global airlines market 4. Middle east, China and India
Suggestions
Establish other HUBS ( but at present government forbids this) Alliance (overseas) is a key option
(Lufthansa to access Frankfurt)
WITH PARTNERSHIP Presently -Equity swaps -Code sharing -Selling seats Implement -Pool marketing efforts -frequent flyer program -Mutual access to airport capacity
Yield management
creating a personalize service that differentiate the airlines with its competitor
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
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: To be the best company to work for whereby employees are treated as part of a big family 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
Vision Mission
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 worlds most renowned maintenance providers and complying with the world airline operations Implementing the regions fastest turnaround time at only 25 minutes, assuring lower costs and higher productivity Providing guests with the choice of customizing services without compromising on quality and services Making sure that processes are as simple as possible
Offering a wide and innovative range of distribution channels to make booking and traveling easier
Applying the point-to-point network keeps operation simple and lower costs.
Safety First High Aircraft Utilization Low Fare, No Frills Streamline Operations Lean Distribution System Point to Point Network
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
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
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
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 valueadded 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
2013, 168% y-o-y increase in profits in comparison to 2012 Despite 1% rise in average fuel price, airlines 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)
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/stories/pdf/ 2011/July/12%20T.Suganthlakshmi.pdf http://www.businessteacher.org.uk/free-businessessays/strategic-management-singapore-airlines.php Cover story- business today July 11 2010 ATW 34th annual 2008 Airline industry Article Betting on low business today Aug 21 2011
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