3. Cost Leadership Strategy
This strategy is all about gaining competitive advantage over competitors by reducing costs. There are two main ways
of achieving this within a Cost Leadership strategy:
♦ Increasing profits by reducing costs considerably, while charging industry-average prices
♦ Volumes – Increasing market share through charging lower prices, while still making a reasonable
profit on each sale because you’ve reduced costs
The key ingredients in effective cost leadership strategy are :
♦ Economies of Scale
♦ Access to the capital
♦ Efficient Supply Chain
♦ Superior Management
♦ Use of Technology
♦ A low cost base (labor, materials, facilities)
4. Industry Growth & Trends
India’s domestic airlines now offer 8,600 more flights and 1.7 million more seats every year since 2003.
62% year on year growth in domestic low cost sector.
Low cost operations account for 44% of all flights within India [compared to 22% in UK and 19% in US
There is a gold rush in the skies over India. In effect, a great number of venture capitalist in the world, with the requisite 444 million
rupees (US$10 million) to launch a private airline, want to claim a share in this booming sector
7. Background (Indigo)
IndiGo Airlines commenced operations on the 04 h of August 2006 with their inaugural flight from Delhi to Imphal.
Founded by Rahul Bhatia and Rakesh Gangwali, InterGlobe established IndiGo the following year, modelled on US low cost carrier JetBlue and
bolstered with an investment from president & CEO Bruce Ashby (a former US Airways EVP).
Consolidating its position as the fastest growing airline in India with 237 flights ,connecting 25 destinations across the nation, in a short span
of almost 5 years
January 19, 2011 ±India's largest low fare airline, IndiGo, has been granted international traffic rights, by the Government of India, to operate
services from several cities in India to Singapore, Bangkok, Dubai and Muscat during the forthcoming summer schedule
August 12, 2010 Airlines bagged the prestigious Skytrax World Airline Award for being the best low cost airline of India & Central Asia at the World Airline
Awards . It is said to be the only company in Indian domestic aviation industry which is profitable while most of its competitors are sufferings from various
problems – internal and external and reporting losses
Within 6 years of operation it has captured almost 20% of the market share and is the fastest growing airlines in the domestic market. Indigo has recently
captured the no-1 position betting Jet Airways and Kingfisher.
The aircrafts with all economy 180 seats were onboarded.
8. Every time an IndiGo aircraft takes off in daylight, the pilot switches off the
navigation lights located on its wing and tail tips.
The reason: savings on the cost of changing bulbs. It’s such a minor detail and
the saving so small that most airlines wouldn’t bother, but it’s taken seriously
9. Indigo’s Positioning
Price & Product Attributes ±Economy oriented
Customer Service Processes ±On time every time
Strong & Organized Service Distribution & Delivery Systems
Healthy & Luxurious Service Environment
Competent Service Personnel
10. Focus areas before placement
• Cost Control : Money saved is money earned
• High on Customer Service
• Prompt complaint redressal system
• Low turnaround and better timeliness
• Driving employee efficiency
• Low fare Airlines with maximum possible comfort
• No superfluous business
11. Indigo’s Key drivers
of aircraft Benefits
Reduces maintenance and inventory cost
Operate on Lower charges, lower turnaround time due to less congestion
E-Ticketing secondary Improves aircraft utilization by reducing waiting time at airports
More seats per flight so spread costs over a larger base
Helps to keep the cost and hence the fares low. No frills such as
Point to Point free food/drinks, airport lounges etc.
Reduces employee cost and leads to higher employee
Single class Emphasis on direct sales of ticket through internet to avoid fee
per aircraft and commissions paid to travel agents
Primarily on board Sales. Provide alternate source of revenues –
No In-flight helps to reduce break even PLF.
Indigo has been able to remain profitable and grew its market share since inception.
However it is still a relatively young airline (6 yr old). It has to prove that low cost
model can remain profitable in long run, just like South West airline which has been
operating as LCC since 40 yrs. It has started international operations in September
2011. The international sector is a different ball game altogether. Indigo has to see
how it can compete in that sector with its existing business model.