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Case Study - Soaring into the High Skies

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 Diptiman Banerji, Prabal Mukherjee, and Nehal Siroya,
Indian Institute of Management, Calcutta
Soaring
into the
high skies
IndiGo Airlines started operations in August 2006,
after having ordered a hundred A320 aircraft to
be delivered in a staggered manner1 in 2005. Since
then, it has been on a path of constant growth
vis-à-vis revenue and with a minor bump or two,
has also seen a steady rise in its profits.This case
attempts to understand the environment in which
this airline has grown, and seeks to analyse the
reasons for its success in a challenging industry,
where players such as Air Sahara and Kingfisher
got grounded.
Case
study
T
he Indian aviation sector
in 2006 was an exciting
place to be in. The growth
of passenger traffic (both
domestic and international
combined) was over 20% in
both FY 2004-05 and 2005-
06 , thus setting the stage for a keen interest in
2
entering this sector.
The major competitors were Indian Airlines,
Jet Airways, Kingfisher Airlines, and Air Deccan.
The market share for the giants—Air India and
Jet Airways, the two major full-service airlines—
stood at 22.2% and 32.3% respectively. Air
Deccan had a market share of above 15%, but its
share was declining3. It was the first ‘low cost’
player in the market and had, for the first time,
attempted to bring air travel within the reach of
the growing middle class.They were pioneers in
showing that the business of flying in India could be
about volumes, instead of margins.Their business
model focussed on low costs, extensive route
network, and low fares to attract a large volume
of passenger traffic. However, Air Deccan suffered
losses owing, in part, to the high cost of aviation
turbine fuel (ATF) in India, and the undeveloped
air travel market for the middle class.
It was this strategy of high volume-low margin
flying that IndiGo successfully planned and
implemented. The Indian middle class, with
its potential spending power, was growing at a
breathtaking pace4 and it made sense to have the
Indian middle class as the target market. IndiGo
entered the market and from the very start gave
established players stiff competition. The market
shares for Air India and Jet Airways dropped
sharply to 19.8% and 22.7% respectively in the
January-October 2007 period. Air Deccan was
acquired by Kingfisher Airlines in May 20075,
leaving SpiceJet and IndiGo to battle it out in the
low-cost carrier (LCC) category. And this would
INDIAN MANAGEMENT NOVEMBER 2016 27
 have been the crux of the competition, had
Figure 1: GDP growth rate of India from 2000-2015 not a serious incident hit the world and the
GDP Growth rate (India) Indian economy.
10.5
Depression and its aftermath
9.5 In 2008, the effects of the subprime crisis,
GDP Growth rate (%)

8.5
which had initiated in the US in 20066, hit the
world economy and India as well. The effect
7.5 was a sudden drop in the GDP growth rate
(Figure 1), and a majority of Indian businesses
6.5
were affected. The direct effect of this on the
5.5 aviation sector was the decline in the number of
passengers (Figure 2).
4.5
The lowering of spending and the subsequent
3.5 drop in passenger numbers—which are
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 natural consequences of any depression—hit
the industry hard, especially the full-service
carriers. The effect on low-cost carriers was
less pronounced as the lowered spending on
air travel shifted a lot of customers from full
service to LCCs. Thus, while all the other
Figure 2: Indian carriers’ domestic passenger numbers airlines were coping with ever-increasing
and passenger number growth from Jan-2006 to Nov-20117: losses, IndiGo kept going strong and reported
profits every year8. The success of IndiGo was
Indian carriers domestic passenger numbers and passenger number firmly established when in 2012, it overtook Jet
growth (trend line in blue): Jan-2006 to Nov-2011
Airways as the leading airlines in the country
Thousands
with a market share of about 27%9. The trend
5,200 continued in the following years with IndiGo
reporting profits while other airlines struggled
4,700 to contain their losses as shown (Figure 3). As of
FY 2015-16, IndiGo has a market share of about
4,200 38.4%, 16.5 percentage points above its nearest
competitor, Jet Airways.
3,700
Analysing IndiGo’s strategy
3,200
IndiGo maintained its steady performance
over the years, even when all other Indian
airlines were not doing as well. While analysing
2,700
IndiGo’s success story, we will not only look at
some of its well-publicised cost management
2,200
strategies, but also how it internally manages its
Jan-06
Mar-06
May-06
Jul-06
Sep-06
Nov-06
Jan-07
Mar-07
May-07
Jul-07
Sep-07
Nov-07
Jan-08
Mar-08
May-08
Jul-08
Sep-08
Nov-08
Jan-09
Mar-09
May-09
Jul-09
Sep-09
Nov-09
Jan-10
Mar-10
May-10
Jul-10
Sep-10
Nov-10
Jan-11
Mar-11
May-11
Jul-11
Sep-11
Nov-11

service operations efficiently and differentiates

itself from other operators in the passengers’
(Source: CAPA - Centre for Aviation & Indian Ministry of Civil Aviation) mind share.

28 INDIAN MANAGEMENT NOVEMBER 2016

 Case
study

Figure 3: Profit margins for major Indian airlines (FY 2010-11 to FY 2014-15)10
Profit Margins for major airlines Profits
40
2000
20
0
0 Fy11 Fy12 Fy13 Fy14 Fy15
Indigo -2000
Fy11 Fy12 Fy13 Fy14 Fy15 Indigo
-20 Spice Jet -4000
Spice Jet
-40 Air India -6000 Jet Airways
Jet Airways -8000
-60 Air India
-10000
-80
-12000
-100
-14000

Lowering costs
Cost management has been the foundation
on which the success story of IndiGo Airlines
has been built. Some of the cost management
strategies it has used successfully are as follows:
 Bulk orders of aircraft: IndiGo always orders
its aircraft in bulk. The first order for 100
aircraft was placed in June 2005. It has now
half years, ensuring that IndiGo can avoid the
necessary and costly D-check maintenance
(the most thorough check for a plane13) that
comes every six years. Also, IndiGo can renew
its fleet every six years or so, thereby reducing
the maintenance cost required and saving on
overall operating costs.
 IndiGo has also made use of the latest fuel-

ordered 250 additional planes. The delivery
schedules are staggered over long periods.
This bulk order strategy gives the airline
bargaining power and this reduces the cost of
the aircraft.
 IndiGo uses six-year sale and leaseback
efficient technologies such as SelectOne
engines manufactured by IAE (a joint venture
of Rolls-Royce and Pratt & Whitney) and
Sharklet fuel saving wing tip devices14 to
reduce fuel costs.
 Having only one type of airplane in its fleet

agreements11 for its fleet. In a sale and
leaseback agreement, an airline sells a newly
bought airplane to a leasing company (the
lessor) and simultaneously leases it from the
lessor on periodic lease payments. The price
at which a lessee (IndiGo, in this case) sells
an airplane to a lessor is usually higher than
what it has paid to the original manufacturer
also gives it a cost advantage. As of September
2016, IndiGo has 118 Airbus A320 planes. Its
latest order of 250 planes is also of A320 Neo,
a new variant of A320. Therefore, spare parts
have less diversity and hence inventory can
be better streamlined and inventory costs
reduced significantly.
 IndiGo has stuck to the concept of

(for example, Boeing); thus, IndiGo makes
$4-5 million from sale-and-leaseback of each
aircraft making an instant profit from the
transaction12. Further, the primary asset (the
airplane) is not owned by IndiGo, keeping the
balance sheet light and helping the airline to
save on depreciation provision, thus increasing
profit. The average lease term is five-and-a-
an LCC and hence the frills associated
with the flight are few. Extra leg space and
pre-booked meals are the only luxuries that
can be bought separately over the standard
offering. Pre-booked meals ensure that the
inventory of food on board is low. Keeping
frills at a minimum has helped reduce the
operating costs.

INDIAN MANAGEMENT NOVEMBER 2016 29

Figure 4: Sequential service offering structure of Indigo Airlines
(Source: Authors’ research)
 Optimisation of fuel is another important
factor behind the success of IndiGo Airlines.
ATF forms a large chunk, almost 35%15
of the operating expense of an airline
company. By optimising fuel use using the
patented Required Navigation Performance
technique16, it reduces fuel on board for each
flight as well as reduces fuel consumption.
 IndiGo has lower turnaround times than the
industry benchmark. The turnaround time
has been cut by an efficient signalling method
that uses automated short messages instead of
the manual method followed in the industry.
This has resulted in IndiGo planes having a
diurnal in-the-air time of about 11 hours,
when compared to the industry average of
ten hours17.
 Another aspect worth looking at in this
context is the practice of maximisation of
flight usage. This is ensured by the strategy
ABOUT THE AUTHOR of connecting flights whereby a majority of
Diptiman Banerji is IndiGo flights go on break journeys, that
Doctoral Candidate, is, trips involving more than two airports.
Marketing Group,
Indian Institute This increases the utilisation of flights
of Management and the revenue generation per asset,18
Calcutta.
correspondingly.
30 INDIAN MANAGEMENT NOVEMBER 2016
Differentiating itself through its
service portfolio
Looking at IndiGo’s service portfolio through
the lens of a sequential structure gives one
a good idea of how the airline has improved
upon offerings made by other Indian airlines
at a certain level, while maintaining parity
with the best airlines’ offerings at other levels.
A sequential pattern of five different types of
service offerings offered by it is shown in Figure
4. A customer can experience one service
offering from each tier in the course of the
entire process, from booking till the end of her
journey. For example, online booking>kiosk
check-in>normal seats>no food can be one
of the service offering combinations, just as
IVR booking>normal check-in>extra leg
space>web-booked food can be another.
Therefore, looking at the types of offerings in
each tier can give a good idea about the overall
service portfolio of IndiGo Airlines.
Booking: Booking or reservation is the first
step where the customer contacts the company.
Therefore, it is essential that the experience is
as pleasant and customer friendly as possible.
It is in this phase that the customer would have
just completed the evaluation of alternatives
and is still likely to shift to the choice which
was second in his list of preferences; any
unpleasantness experienced at this stage might
lead to such a change of mind.
A critical issue we can evaluate here is the
overall flight routes IndiGo offers. Presently, it
offers a total of 883 flights daily, to and from
35 Indian and five international airports19.
The number of flights is more than two times
the number of flights offered by its nearest
competitors—for example, Spicejet offers 298
flights daily20.
As far as booking is concerned, ‘hold
reservation’ is a unique facility offered by
IndiGo, wherein customers can request the
airline to hold their reservation for 72 hours
from the time of booking a ticket. If they

IndiGo has followed make the payment at any
the triple strategy of ticketing counter or online
within these 72 hours, the
promoting convenience ticket is confirmed; else, the
and comfort for its booking stands revoked. This
passengers and having facility is an important point
the best on-time of differentiation for IndiGo’s
booking services.
performance. Check-in: This is the second
stage in the customer-company
interaction process. Web check-in and mobile
check-in are similar and differ in only the
channel through which it is done. Mobile check-
in done via the mobile app available on Android,
BB10, Windows phones, and IOS platforms.
Web check-in is done through the website. In
both, the user can check in two hours before the
flight and print the boarding pass. Alternatively,
if they do not have any check-in luggage,
customers can check in at the kiosk and have
the boarding pass printed there instead of at
the counter.
The ‘fast forward’ service is a premium
service provided at this stage, available at the six
major airports of India—the customer, upon an
additional payment of R200, gets access to this
counter21 that allows priority access. However,
all these facilities are mostly found with all the
other carriers as well. Also, the developments in
this field are quickly copied across the industry.
For example, IndiGo had initiated the kiosk
printing facility. Now, almost all airlines offer
this service.
Luggage: Luggage rules are in keeping with
the industry standards. For example, check-
in luggage of 15 kg per passenger in domestic
flights and 20 kg per passenger in international
flights is allowed without additional charges.
ABOUT THE AUTHOR There are charges for baggage beyond the
Prabal Mukherjee permitted limits.
is PGP Student, Seating: Seating is a critical aspect as it entails
2016-18 batch,
Indian Institute the experience of flying. IndiGo offers two
of Management basic types of offerings according to industry
Calcutta.
standards: regular seats and those with extra
Case
study
leg space. There are a total of 180 seats in every
IndiGo plane. Of these, 18 have extra leg space
that can be booked by paying an additional
charge. If made online, the payment is R600,
and if paid at the airport, it is R80022.
In-flight food: IndiGo, being a low-cost
carrier, does not serve complimentary food
on its flights. However, customers do have the
option of having meals on board—meals can
be booked online, anytime before the flight. In
case a customer has not booked a meal online,
he/she can still buy food on board, from the
available menu options. The options are defined
by the length of the flight—for example, for a
flight of 30-60 minutes duration, only snacks
are available, whereas there is hot and cold food
in a flight with a duration of more than an hour.
Despite these being the strategies followed by
other carriers as well, in the experience of all
the three authors, the availability of warm and
fresh food for customers who had not booked
meals online was better in the case of IndiGo.
Customer satisfaction
IndiGo has maintained an enviable record of
high customer satisfaction levels—customers
have rated IndiGo higher than both Air India and
Go Air23 in recent reviews—by following the
triple strategy of promoting convenience and
comfort for its passengers and having the best
on-time performance.
Convenience: The entire process the customer
goes through, as described above, is kept as
smooth as possible and unique offerings such as
‘hold reservation’ and pre-booked meals go into
making the experience a pleasant one.
Comfort: Comfort of travel is an essential part
of the customer’s experience. IndiGo ensures
this by (i) having separate arrangements for
expectant mothers, infants, persons with special
needs and those with medical conditions, and
(ii) having ramps for entry into the plane, which
reduces the difficulty faced in negotiating stairs
by the old and the infirm. It also allows smooth
INDIAN MANAGEMENT NOVEMBER 2016 31
Figure 5: Choice of airlines in a primary survey (Sep 2016)
Choice of Airlines for Consumers
Spice Jet Air India
8% 11% Depends on
Jet Airways time and price
12% 3%
Go Air
6%
Indigo
60%
The positioning is based movement of luggage for those
with wheel-fitted hand luggage24.
on being a low-cost,
In fact, IndiGo has replaced the
no-frills airline with focus traditional stairs while getting
on customer satisfaction. on a plane with an escalator-type
step ladder system that makes
the boarding process a lot easier.
On-time performance (OTP): IndiGo
maintains an excellent on-time flight record.
According to latest reports, it had an average
annual OTP of 83.80% against the industry
average of 79.90% for 201525. The OTP track
record of the airlines is likely to attract flyers
who value their time.
This three-pronged strategy has clearly
worked for IndiGo, as it has some of the highest
ratings across Indian LCCs in different surveys.
For example, IndiGo has a score of eight out of
ten on the Skytrax website26.
Clear brand positioning
IndiGo clearly communicates what it exactly
stands for, to its customers. The positioning
is based on being a low-cost, no-frills airline
with focus on customer satisfaction. This
is ensured in all the brand communication
done by the airlines. A major part of the
marketing communication is done through
print advertisements in leading national
32 INDIAN MANAGEMENT NOVEMBER 2016
Reasons for flying IndiGo Marks Obtained
Agent preference 41
Office provides tickets 52
Compensation for damages and or losses 74
Good in-Flight Meals 89
Luxury 93
Personalised service 95
Cabin Crew & Ground Staff Quality 102
Brand Image 106
In Flight Environment (Cleanliness, Freshness of air,
108
Head rest tissues in place... etc
Price is attractive 129
On Time Performance 135
newspapers and journals. What was unique was
that advertisements in local languages too are
used (selected print advertisements are shown
in Appendix 1). In conjunction with print ads,
airport hoardings that convey the same message
are also used as a means to capture eyeballs
of passengers across all airlines (some airport
hoardings are shown in Appendix 2).
TV advertisements have not been used as
frequently. In fact, only two television ads
have been launched till date, one in 2010
and another in 2011. Both emphasised the
‘on time’ performance aspect as well as the
professionalism of the service of the airlines.
The airline maintains a considerable online
presence. This includes advertisements on social
media sites and a constant stream of engaging
communication on the IndiGo Facebook page.
A lot of promotional offers are disseminated
via these sources and given that internet
penetration is higher among the educated
middle class, the offers are likely to be noticed
by members of the primary target segment
(ie., middle-class Indians).
Primary research findings
A survey was done, in 2016, by students
of a leading management institute in India.
It was based on a web-based questionnaire

Among the reasons why with a respondent base of 66
people chose an airline consumers who had flown and
most flew with some regularity.
as the best, on-time The objective was to [find out]
performance and low which the preferred airline of
prices feature on top. the interviewees was and the
reasons for it. The research
revealed that:
 Almost all respondents used the internet as
the primary search for finding out the various
options available, and the costs and benefits
related to each choice.
 The ‘evoked set’ of alternatives was heavily
dependent on the options available on the
internet. This was borne out of the fact that
some consumers have refrained from choosing
the airlines they travel in, and have mentioned
that they want the one that matches
availability and price requirements.
 As far as the choice of airlines is concerned,
consumers have chosen IndiGo Airlines as the
carrier of their choice (Figure 5). This is in
line with the market statistics which shows
that IndiGo is presently the market leader
with 38.4% market share27.
 Among the reasons why people chose an
airline as the best, on-time performance and
low prices feature on top. The preference list
mirrors the strengths of IndiGo Airlines vis-a-
vis on-time performance and low costs.
APPENDIX 1
Print ads
Case
study
Conclusion
To sum up, in its ten years of operations,
IndiGo Airlines is one of the most successful
Indian aviation companies. Through pursuing
a low-cost carrier (LCC) model diligently,
differentiating itself through its service
portfolio, offering customer satisfaction through
convenience and comfort, and a clear brand
positioning, IndiGo has emerged as a preferred
airline for many. Though this case does not cover
the international operations of IndiGo, which
started in 2011, it is important to note that
the airline follows the same LCC model in its
international flights also.
There are challenging times ahead, with
competitive fare pressure from existing airlines,
the entry of new carriers, for example, Vistara
and AirAsia, and uncertain events such as the
delay in delivery of its fuel-efficient A-320
Neo airplanes28. For example, the airlines’
Q1 FY 2016-17 earnings dipped 7.30% to
R591 crore29. However, with a healthy growth
in passenger traffic in the last two years (FY
2014-15 and 2015-16) and projections of
similar growth in the future30, the turbulence in
the sector should be foreseeable. Even though
IndiGo has an excellent track record, it remains
to be seen how IndiGo manages charter these
rough waters in the years ahead.
1 http://www.businesstoday.in/magazine/special/IndiGo-in-
most-promising-companies/story/18666.html
2 IL&FS presentation, available at http://www.domain-b.com/
aerospace/upload/presentation/12312007.ppt
3 http://articles.economictimes.indiatimes.com/2007-11-16/
news/27687285_1_market-share-full-service-carriers-
budget-carriers
4 http://www.mckinsey.com/mgi/overview/in-the-news/next-
big-spenders-indian-middle-class
5 http://timesofindia.indiatimes.com/business/india-business/
Kingfisher-buys-control-of-Air-Deccan/articleshow/2090124.
cms
6 http://www.investopedia.com/articles/07/subprime-blame.
asp
7 http://centreforaviation.com/analysis/robust-growth-in-india-
domestic-market-fails-to-translate-into-profits-65480
8 http://profit.ndtv.com/news/industries/article-IndiGo-posts-
profit-for-5th-year-fy13-net-soars-516-327595
9 http://www.vccircle.com/news/transportation/20121019/
IndiGo-leads-market-share-272-five-facts-about-airline
10 Profit figures compiled from annual financial data available
on www.moneycontrol.com , http://corporate.spicejet.com/
INDIAN MANAGEMENT NOVEMBER 2016 33
 Case
study
Content/pdf/InvestorPresentation-Q4FY16.pdf , http://www.
financialexpress.com/industry/companies/air-india-flies-into-
operating-profit-first-time-since-merger/239221/,
www.airindia.in
11 http://www.firstpost.com/business/5-reasons-why-IndiGo-is-
market-leader-today-424550.html
12 http://articles.economictimes.indiatimes.com/2013-12-22/
news/45475783_1_aditya-ghosh-indi-go-interglobe-aviation/3
13 http://www.gutenberg.us/articles/aircraft_maintenance_
checks#D_Check
14 http://www.airbus.com/presscentre/pressreleases/press-
release-detail/detail/IndiGo-becomes-the-first-indian-airline-
with-sharklet-equipped-a320/
15 As stated in the previous report on the airlines industry
16 http://www.thehindu.com/business/companies/IndiGo-
plane-becomes-first-to-land-using-fuelsaving-technology/
article3562910.ece
17 http://www.firstpost.com/business/5-reasons-why-IndiGo-is-
market-leader-today-424550.html
18 http://www.industrialeconomist.com/page.
php?page=8&cid=1246
19 http://timesofindia.indiatimes.com/business/india-business/
IndiGo-adds-capacity-to-operate-883-daily-flights/
articleshow/54721050.cms
20 http://www.business-standard.com/article/specials/airlines-
spar-over-on-time-performance-116090801281_1.html
21 http://livefromalounge.boardingarea.com/2012/10/19/IndiGo-
Is the case study method still relevant in an
environment fraught with uncertainties?
The corporate world, just like the military, would
like its team members to be trained to face
and excel in the volatile, uncertain, complex,
and ambiguous world. Decision-making under
conditions of risk and uncertainty requires strategic
leadership competencies that can help to make
sense of the fluid and dynamic environment of
today’s business.
We believe that the case study approach
has particular merits, which makes it a useful
pedagogical tool available to the instructor to
train business and military team members to be
effective decision-takers. For example, a case
study of how an organisation survived a crisis, or
what strategies it took to be successful can make
team members appreciate and engage with the
diversity of situational aspects. By learning from the
successes or failures of actual business situations,
ABOUT THE AUTHOR participants are attuned to various possibilities,
and what helped or did not. This equip them to
Nehal Siroya,
PGP Student, make sense of the fluid business world around us.
2016-18 batch, Another useful aspect of learning from case studies
Indian Institute is honing information processing skills. With so
of Management
Calcutta. much information and data available all around us, it
34 INDIAN MANAGEMENT NOVEMBER 2016
View publication stats
launches-priority-check-in-priority-baggage-services/
22 https://www.goIndiGo.in/information/travel-information/
booking/add-on-services.html 3 rows are said to be rows of
extra leg space. IN Airbus 320, the rows all have 6 seats in
them- three on each side of the aisle. Therefore, total number
of Leg Space Seats=6*3=18.
23 http://www.airlinequality.com/airline-reviews/goair/
http://www.airlinequality.com/airline-reviews/air-india/
http://www.airlinequality.com/airline-reviews/IndiGo-airlines/
24 http://www.forbes.com/sites/johngoglia/2013/06/16/IndiGo-
airlines-eliminates-stairs-for-easy-airside-boarding-why-
havent-other-airlines-caught-on/#7404274a78c5
25 http://www.bangaloreaviation.com/2016/02/2015-annual-
review-the-best-airlines-in-india.html
26 http://www.airlinequality.com/airline-reviews/IndiGo-airlines/
27 2005- Air India, Indian Airlines, Jet Airways and Air Sahara,
2016-IndiGo, Jet Airways, Air India, Spice Jet, Go Air, Vistara
and Air Asia.( as per KPMG – FICCI India Aviation Report
2016 taken from http://www.slideshare.net/ShaleenSehgal/
ficci-kpmg-india-aviation-2016-report )
28 http://www.livemint.com/Money/
i7MWgnWokRhQw3JjGbQrrI/Why-the-IndiGo-stock-has-
taken-a-beating.html
29 http://www.business-standard.com/article/companies/
IndiGo-stock-drops-11-as-analysts-cut-profit-
outlook-116080201227_1.html
30 http://www.ibef.org/industry/indian-aviation.aspx
takes a special kind of skill to filter what is required
and base one’s decisions on these inputs. A case
study with its multiple data points presents exactly
a similar situation as one would face in actual life,
and helps the participant to decide how to manage
overlapping and sometimes conflicting information.
Is there an alternative that could equip
students better and bring them face to face
with present-day business realities?
Another possible approach to expose learners to
unpredictable (though realistic) business situations is
through simulation games. For example, marketing
simulation games position a learner in the role of a
marketing manager, or a brand manager or a sales
manager, and the learner has to take business
decisions, which then leads to marketing-related
outcomes. Learners can compete either against
computer-generated competitors or their peers.
Simulation games offer an excellent way to apply
business concepts in realistic settings. The limitation
of this approach, however, lies in the fact that actual
business settings can be more unpredictable than
can be brought out in a simulation game, and
there is no scope to learn from real successes
and failures.