The case discusses the emergence of low-cost carriers (LCCs) in India in relation

to the growth of the Indian aviation industry and the subsequent fall of the LCCs
into financial loss. The LCCs became important for value-adding and cost-cutting
alternatives in corporate business travel.

Among the many low-cost airlines in India, Spice Jet had been one of the most
popular, with the lowest airfares and highest customer values. Though Spice Jet
had a net profit of INR 1.01 billion (US$20.2 million) in fiscal year 2010-2011, the
results following the financial year indicated that the company had also joined the
ranks of loss-making airlines in India.

A host of issues - such as rising debt, increasing cost to revenue ratios, growing
management challenges, complicated flight operations, and rising oil prices - were
threatening the survival of airline companies, especially LCCs.

How did the concept of LCC emerge in India? Which factors encouraged the
growth of LCCs?

The history of aviation industry dates back to 1930 when the Tata group launched
the Tata airlines. Though at that time the entry of private firms were restricted but
after the liberalization the entry of private owned airlines operators and LCC
emerged in the Indian market. By 1994 the government approved the entry of
private players in the market.

LCC emerged as the main concentration on developing the economy was on

infrastructure and the development of the transportation and in particular the
aviation industry Thus giving more liberal option to private players and expanding
the same industry with low cost fair and carriers as a ticket costing The same as
first tier ticket of railways Thus encouraging people to travel by air reaching their
destination in lesser span of time.

In 2003 the first LCC entered in India which was the Air Deccan. The entry of this
first LCC in India constituted a turning point in Indian aviation industry. It led to a
shift from traditional economy and business fares to special discounts, promotional
fares, check fares, web fares and corporate discounts.

India witnessed a compounded annual growth rate of 19.14% in the air passenger
traffic and 9.91 % in cargo movements over the period from 2003-2004 to 2007-
2008. This complemented the success of the LCC model referred to as the “no
frills airlines” business model. This encouraged other private airlines to emerge.
The entry of LCC along with increased FDI inflows, tourist inflows, higher
corporate travel, higher household incomes, sustained business growth and
supporting government policies, all contributed to the growth of the Indian aviation
industry.

Today, there are effectively seven major airlines operating 11 different brands.
 Air India + Air India Express
 Jet Airways + Jet Konnect + JetLite
 Kingfisher Airlines + Kingfisher Red
 IndiGo
 SpiceJet
 Go Air
 Paramount

Out of which GoAir, IndiGo, SpiceJet, JetLite are LCC airlines. The most
significant recent strategic development in the Indian domestic market is that it is
rapidly turning low cost.

What factors should SpiceJet consider before strategizing its operations in

India?
IFE Martix Spice Jet EFE Matrix Spice jet

Strengths Opportunities
future fleet expansion will increase
entered with Rs 99 fares for first 99 the current market share,
days
Fleet of 6 Boeing 737-800 with 189 attractive fares and Quality service
seats will generate more customer
available in tier 2 and tier 3 cities
Weaknesses THREAT
small fleet structure threat of new entrants
small loading capacity high cost aviation turbine fuel
poor infrastructure high attrition rate
concentrating in north-west-south employee retention is difficult
sectors
What strategies could be adopted by Spice Jet to overcome the factors that
inhibit the success of the LCC business model?

Training more pilots and air traffic controllers will help in maintaining the
retention rate of the employees. The retirement age can be raised to 65 as it is a
private organization, which will give more experienced professional work.

Proper knowledge management systems can be used to share knowledge, which

will help the implicit knowledge remain in the organization.

Employee engagement programs can be offered.

By getting tie-ups the state owned retailers of aviation turbine fuel will help in
getting the same ATF at a lower cost.

Tie-ups with more MNC’s and government organizations will lead to the business
class use the service more than the normal crowd.

Creating a good infrastructure in tier 1 cities will help. Frequencies in tier 2 and
tier 3 cities should be increased with more marketing strategies. This will get more
passengers in the tier 2 and tier 3 cities.

The fuel costs should be controlled by proper planning as it is one of the major
threats.

Spicejets may increase flights to countries which are aviation hubs & where the
ATF prices are considerably low for eg. Dubai & Singapore where it is 60-70 %
less compared to India. This would reduce the burden of ATF prices to some
extent.

Reduce the flights to region where the infrastructure is very poor, and increase the
number of flights on the routes where the passengers are more.

Spice Jet should focus on the International flights and follow the strategies
followed by world’s first international LCC Southwest air lines

Spice Jets may look up for entering into alliances with 49% FDI in order to expand
their business domestic as well as internationally.
Managing Employee Remuneration Costs Motivating Employees: Spice jet should
give considerable attention towards the employee costs, & also make proper HR
strategies to retain the employees. The employee loyalty needs to be improved by
providing them proper appraisal.

The competition in LCC airline is tough and is increasing so there has to be

differentiation, to have a competitive edge over the other competitors.