Brief Introduction to the case

Prior to 1991, the Indian aviation market was highly regulated; air travel was very expensive
and beyond the reach of most people, which limited the size of the market. But India’s civil
aviation industry was opened up in 1991, following the introduction of the Open Sky
Policies, and the industry witnessed intense competition. The aviation sector is now an
oligopoly in India, with six major players in the market. IndiGo, launched in 2006, is India’s
largest airline. Taking advantage of market conditions (e.g., increased demand for air travel
resulting from stagnant rail ticket prices and rising per capita income), IndiGo emerged as a
dominant player in the industry in 2008 with its unique selling proposition of offering both
punctuality and flawless services.
However, after more than a decade of consistent profitability, IndiGo has experienced a
decline in profits, which is affecting its share price. IndiGo’s chief executive officer must
consider the minimal control IndiGo and its competitors have over ticket prices, rising
aviation fuel prices, and rising input and personnel costs when creating a strategy to increase
profits, while also achieving higher occupancy rates and providing flawless services to
demanding middle-class Indian passengers.
Questions to be answered
1. Why have prices remained sticky for economy-class passengers in the Indian aviation
market?
2. How are cross elasticity and income elasticity relevant in IndiGo’s managerial
decisions?
3. What is the source of IndiGo’s economies of scale?
4. How can IndiGo sustain its profitability in the future?