Q.1How did the concept of LCC emerge in India?

Which factors
encouraged the growth of LCCs?

Aviation industry in India was born in the year 1930.Tata group one of the
prominent industry in India launched Tata airlines (India’s first airline services)
After the emergence of the airline industry in India, after two decades more eight
private players started their business but their operations were quite restricted.

These airlines proved to be a failure despite constant support from the

government. As a result Air traffic enquiry committee was formed constituted by
government of India recommended the nationalization of airlines. The air
corporations Act 1953 was formulated and the two entities were nationalized
namely Indian airlines corporation (IA) and Air India International (AI). The act
restricted private players until 1986. In 1990’s private sector was allowed to
reenter the market with the wave of the economic liberalization.

This was the time when LCC concept in India was brought into picture in the
Indian market.

By March 1994 the government had approved six private carriers to commence
the domestic services. But despite two carriers all others closed and filed
insolvency. This duopoly continued till 2003, this duopoly was challenged by air
Deccan in 2003 with its concept of LCC which made this industry emerge in India
which proved to be a turning point in this industry.

Air Deccan with its entry brought into picture special discounts, promotional
fares, check fares, web fares and corporate discounts or plans.

The reasons for the growth of aviation industry were as follows :-

 Need to Strengthening its infrastructure and succeed in its growth

prospects.
 With the transformation from an over regulated and under managed sector
to a more liberal open business, the aviation industry attracted enormous
investments post 2004 facilitating LCC further.

 India witnessed a compounded annual growth rate of 19.14% in the air

passenger traffic and 9.91% in cargo movements from 2003-04 to 2007-
08. This in turn complemented the LCC model and further encouraged
other private players to go that route.
Q.2 What factors should SpiceJet consider before strategizing its
operations in India. Use tools such as CPM (Competitive Profile
Matrix), EFE Matrix (External Factor Evaluation), & IFE (Internal
Factor Evaluation), which serves to identify various factors, and
forces that are critical in formulating appropriate strategies
needed to accomplish the organization's objectives?

Competitive profile matrix is an essential strategic management tool to

compare the firm with the major players of the industry. Competitive profile
matrix show the clear picture to the firm about their strong points and weak
points relative to their competitors. The CPM score is measured on basis of
critical success factors, each factor is measured in same scale mean the
weight remain same for every firm only rating varies. The best things about
CPM that it include the firm and also facilitate to add other copetitors make
easier the comparative analysis.

CPM matrix for Spicejet

Spiceject works on a low cost model and it has to be very careful in matter of operating
costs. This model here is to stay for a long term period since it can directly compete with
other means of transport. There are certain tools to be discussed below which will give
us clear picture of formulation of strategies which can be implemented by Spicejet.

EFE MATRIX

External Factor Evaluation (EFE) matrix method is a strategic-

management tool often used for assessment of current
business conditions. The EFE matrix is a good tool to visualize
and prioritize the opportunities and threats that a business is
facing.The EFE matrix is very similar to the IFE matrix. The
major difference between the EFE matrix and the IFE matrix is
the type of factors that are included in the model. While
the IFE matrix deals with internal factors, the EFE matrix is
concerned solely with external factors.

External factors assessed in the EFE matrix are the ones that

are subjected to the will of social, economic, political, legal,
and other external forces.

Developing an EFE matrix is an intuitive process which works

conceptually very much the same way like creating the IFE
matrix. The EFE matrix process uses the same five steps as the
IFE matrix.

List factors: The first step is to gather a list of external factors.

Divide factors into two groups: opportunities and threats.

Assign weights: Assign a weight to each factor. The value of

each weight should be between 0 and 1 (or alternatively
between 10 and 100 if you use the 10 to 100 scale). Zero means
the factor is not important. One or hundred means that the
factor is the most influential and critical one.  The total value
of all weights together should equal 1 or 100.

Rate factors: Assign a rating to each factor. Rating should be

between 1 and 4. Rating indicates how effective the firm’s
current strategies respond to the factor. 1 = the response is
poor. 2 = the response is below average. 3 = above average. 4 =
superior. Weights are industry-specific. Ratings are company-
specific.

Multiply weights by ratings: Multiply each factor weight with

its rating. This will calculate the weighted score for each
factor.
 Total all weighted scores: Add all weighted scores for
each factor. This will calculate the total weighted
score for the company.
KEY EXTERNAL WEIGHTS(0.1-0.5) RATING(1-5) WEIGHTED
FACTORS (Low to high) (High to low) SCORE

External
Opportunities

M&A, Stake sale 0.1 4 0.4

External Threats

Competition from 0.5 2 1

other low cost
carriers

Total 0.6 1.4

IFE matrix

Internal Factor Evaluation (IFE) matrix is a strategic management tool

for auditing or evaluating major strengths and weaknesses in functional areas of a
business.

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IFE matrix also provides a basis for identifying and evaluating

relationships among those areas. The Internal Factor
Evaluation matrix or short IFE matrix is used in strategy
formulation.

The IFE Matrix together with the EFE matrix is a strategy-

formulation tool that can be utilized to evaluate how a
company is performing in regards to identified internal strengths
and weaknesses of a company. The IFE matrix
method conceptually relates to the Balanced Scorecard
method in some aspects.

The IFE matrix can be created using the following five steps:

Key internal factors...

Conduct internal audit and identify both strengths and

weaknesses in all your business areas. It is suggested you
identify 10 to 20 internal factors, but the more you can provide
for the IFE matrix, the better. The number of factors has no
effect on the range of total weighted scores (discussed
below) because the weights always sum to 1.0, but it helps to
diminish estimate errors resulting from subjective ratings.
First, list strengths and then weaknesses. It is wise to be as
specific and objective as possible. You can for example use
percentages, ratios, and comparative numbers.
Weights...

 Having identified strengths and weaknesses, the core of the

IFE matrix, assign a weight that ranges from 0.00 to 1.00 to
each factor. The weight assigned to a given factor indicates the
relative importance of the factor. Zero means not important.
One indicates very important. If you work with more than 10
factors in your IFE matrix, it can be easier to assign weights
using the 0 to 100 scale instead of 0.00 to 1.00. Regardless of
whether a key factor is an internal strength or weakness,
factors with the greatest importance in your organizational
performance should be assigned the highest weights. After
you assign weight to individual factors,
make sure the sum of all weights equals
1.00 (or 100 if using the 0 to 100 scale weights).

The weight assigned to a given factor indicates the relative

importance of the factor to being successful in the firm's
industry. Weights are industry based.

Rating...

Assign a 1 to X rating to each factor. Your rating scale can be
per your preference. Practitioners usually use rating on the
scale from 1 to 4. Rating captures whether the factor
represents a major weakness (rating = 1), a minor weakness
(rating = 2), a minor strength (rating = 3), or a major strength
(rating = 4). If you use the rating scale 1 to 4, then strengths
must receive a 4 or 3 rating and weaknesses must receive a 1 or
2 rating.

Note, the weights determined in the previous step are industry

based. Ratings are company based.

Multiply...

Now we can get to the IFE matrix math. Multiply each factor's
weight by its rating. This will give you a weighted score for
each factor.

Sum...

The last step in constructing the IFE matrix is to sum the

weighted scores for each factor. This provides the total
weighted score for your business.

IFE MATRIX

Key internal Weights(0.1-0.5) RATING(1-5) WEIGHTED

factors (Low to high) (High to low) SCORE

Internal
Strengths

High load factor 0.4 1 0.4

On time service 0.5 2 1

Internal
weakness

High operating 0.5 4 2

cost

Low service 0.1 3 0.3

quality

Total 0.15 0.7

 Q 3. What strategies could be adopted by Spice Jet to overcome the factors that
inhibit the success of the LCC business model? You can focus on

The mail challenges they face are as follows :-

Employee shortage

Poor infrastructure

High cost of aviation fuel

All the above listed are the factors which are affecting the whole aviation industry and
not the spicejet as an individual company.

Following are the ways or strategies that should be adopted by spicejet so as the cover
up or to hedge them.

a) Differentiating the offer:

1) Differntiation should be based on the core compentency of Spicejet and should
differntiate in such a way that they should lure customer from the other mode of
trasnport rather than competitor.
2) Offer and discounts should be introduced during some festivals which can be
sucessful in turning customers towards them from the other mode of transport as
railways and volvo bus transport (middle class) this strategy mainly involves the
urgency part of reaching the destination. Which will help them cover their cost.
3) Should have corporate customer loyalty programme in place. (suppose co A
employee travels for 10 times to a particular destination in the same year next
travel would be 10 % cheaper)
4) So differentiation is a big but important hurdle for Spice Jet to overcome
competition from Indigo and Jet Lite.

b) Tackling operating costs and managing remuneration of employees:

1) Operating costs are one of the important factor in aviation industry many
airlines have failed because of not being able to manage its operating costs.
2) Kingfisher is the live example in front of the industry it is struggling because of
being unable to control their operating costs
3) Also the rental is very high since they go for the purchase of aircraft through
lease.
4) As ATF are increasing day by day they really need to have a strategy in place to
ring dow its cost one way of doing the same is to hedge against the dollar price
and to invest in the derivatives instruments with underlying asset as ATF which
will bring into account the future price rise and it is a hedge against price rise.
5) Flying a single type of aircraft to cut maintenance costs.
6) Should exorbiantly for the excess baggage. And bagage limit can be differntiated
according to the destination and the ticket price.

7) Also airport charges are low comparatively in Tier-ii cities so they can cover that
as their landing/parking space
8) Increase operations in 2 tier cities and some international destinations.

c) Motivating employees:

1) In these tough times striking good relationship with employees is very essential
2) This industry has a comparatively high attrition rate.
3) Spicejet should introduce performance based appraisal and promotion
mechanism into place.
4) Employees should be offered ESOP plan on certain criteria.
5) Special discounts for the employee and their family for the travel across India.

d) Strategic Alliance:

1) Strategic alliance is one of the method to reduce the exsisting competition.

2) Spice jet should try and take advantage of the exsisting sitituation and should
have a strategic alliance with Kingfisher and try to expand its business.
3) Kingfisher symbolises the luxury in travelling and on other hand Spicejet is LCC ,
this strategy will help Spicejet to diversify its business and offest its losess.
4) Spice jet can try to get membership of Star Alliance, one of the biggest strategic
alliance groups.
5) This will help them to spread their wings across different continents and they
can develop the ability to benchmark against the high industry standards
 6) This will add to quality, which in turn could generate revenue and reduce the
costs.
7) Aviation industry outside India has some very big players and they are into
profits

Managing Employee Remuneration

In order for Spice Jet to remain competitive, it should aggressively pursue talent to
increase productivity and profitability, leveraging human capital to maintain a
competitive advantage.
To meet this challenge, companies, must craft a clear and compelling strategy for
implementing a well thought-out total reward/compensation plan to attract, retain and
key talent. This total reward strategy should integrate key components including:
1. Total compensation
2. Benefits
3. Training, career and personal growth opportunities (World at Work Model)
These core components are critical for an organization like Spice Jet to survive.