Introduction to Strategy Management

Video case

File name: ST101x_W01_C08

A large business group in India has established businesses in several industries such as automotive,
farm equipment, agri business, defense, information technology, leisure and hospitality, real estate
and so on. The Group Chairman is contemplating on venturing into a new industry that is airlines.
Let’s now look at a conversation between the Chairman and the executive management team at
their headquarters in Mumbai.

Dipti: Friends, looks like good days are back for us. Our businesses are doing good. Our cash position
is good. I was thinking whether we should enter a new industry now. How do you reckon airlines
industry in India? Do you think we have enough potential to make money here?

Prateek: Great idea. The future of airlines in India. There is a massive untapped market there and we
are already seeing other businesses in foray with their global airlines.

Ksitij: That makes it even more difficult to enter this already challenging industry. Capital
requirement in high and we have to be very careful about the debt trap that some of the poster boys
of this industry have got themselves into.

Caruna: Exactly. Hardly, anyone is making money in the airlines industry, probably because the
business is mainly seasonal, and that results in a competition so harsh that ticket prices are usually
along the lines of luxury bus or train prices.

Sachi: That's right. The customers are spoiled for choices. With the improvement in the highway
network, I think it's hardly feasible for short distance air travel.

Prateek: I agree. The largest cities are quite competitive, but the tier 2 cities are underserved and
waiting to be exploited. Anyway, are there any other areas that we can look at?

Sachi: We find that most of our tourist circuits are inadequately connected, but if we club it with our
hospitality, which is currently having issues when we have peak seasonal demand, if we could bundle
these, it might be an attractive option for our customers.

Ksitij: Yes. It’s a complex demand supply scenario and pricing is very tricky in this particular industry.

Prabhu: We already had a big data platform to predict the guest flow and to plan our packages.
Interestingly, we developed it for big airline industry, but the software proprietary is with us now. I
doubt if the Indian players will have any such advanced technology.

Ksitij: For our tractor and SUVs, we bargain for huge discounts with our OEMs. How can we bargain
this amount of discounts with an Airbus or a Boeing?

Caruna: The other big ticket issue is oil prices, which hardly anyone can control or predict.

© All Rights Reserved. This document has been authored by IIMB Professors and is permitted for use only within the course Introduction
to Strategy Management, delivered in the online course format by IIM Bangalore. No part of this document, including any logo, data,
illustrations, pictures, scripts, may be reproduced, or stored in a retrieval system or transmitted in any form or by any means – electronic,
mechanical, photocopying, recording or otherwise – without the prior permission of the author.
 Introduction to Strategy Management
Video Case

File name: ST101x_W01_C08

Ksitij: Yes. And the myriad of taxes, and air traffic laws, and regulations related to airport access, and
FDI and so on.

Dipti: Friends, I like this conversation, but I think we need something more concrete to make a
decision. Ksitij and Caruna, can you guys put up a team with your best managers who can do a
thorough industry analysis and present to us sometime next week? Thank you, guys.

© All Rights Reserved. This document has been authored by IIMB Professors and is permitted for use only within the course Introduction
to Strategy Management, delivered in the online course format by IIM Bangalore. No part of this document, including any logo, data,
illustrations, pictures, scripts, may be reproduced, or stored in a retrieval system or transmitted in any form or by any means – electronic,
mechanical, photocopying, recording or otherwise – without the prior permission of the author.