Indigo Airlines: Market Leadership through Service Leadership

IndiGo Airlines: Market Leadership through Service Leadership

“The idea for us was to set up a certain kind of an airline… the kind that is ontime, clean and delivery is well executed. This is our DNA and we intend to hang on to it.”

– Rahul Bhatia, Co-Founder, Indigo Airlines

“Airlines must remember that their fundamental raison d’être is to take off and land on time. This is perhaps the big difference that drew me to choose Indigo (Airlines) in the first place.”

– Abhijit Bhaduri, Chief Learning Officer (as of October 2012), Wipro Group

IndiGo airlines commenced its flight services in 2006 and since its inception it was a no-frills airline. It did not offer entertainment on-board and passengers had to pay for meals on-board. Furthermore, the carrier did not offer any frequent flier or loyalty programs for its customers. However, the airline became the market leader in the Indian domestic aviation industry in July 2012 and in April 2014 its market share had gone up to a formidable 31.6%. What was more outstanding was that during a time when most airlines were incurring losses and a reputed airline shut its operations, IndiGo registered profits for each of the financial years from 2009 to 2013. Could IndiGo’s dominant market position be attributed to its unwavering adherence to the three aspects of its flight services: the on-time performance of its flights, ensuring that its planes were neat and clean and the service on board was efficient? However, with the entry of Air Asia, a true-blooded low-cost carrier, and the imminent launch of flight services by Tata-SIA Airlines, a collaboration between Tata Sons and Singapore Airlines, will IndiGo be able to retain its market leadership status?

The Origins

IndiGo was operated by InterGlobe Aviation, a company established in 2005, which was equally owned by Rahul Bhatia (Bhatia) and Rakesh Gangwal (Gangwal). Gangwal, an engineering graduate from IIT Kanpur, had considerable experience in the aviation industry and had also served as the President and CEO of US Airways. Bhatia was the Managing Director of InterGlobe Enterprises, a group with a turnover of $2 billion as of 2010. It had interests in the hospitality, airline and travel technology sectors. Bhatia and Gangwal had met professionally, a liaison which blossomed into a friendship lasting more than 15 years prior to the airline venture being contemplated............

Going from Strength to Strength within a Short Time

The airline had achieved impressive growth within a short time frame (Exhibit I). In 2009, when the total airline market had shrunk by 5%, Indigo increased its capacity by 46%. In 2010, it increased its capacity by an additional 39%. Furthermore, the airline’s fleet size increased from 34 aircrafts in January 2011 to 41 aircrafts in August 2011............

The Three Tenets

Bhatia and Gangwal’s plan from day one was to be a no-frills airline. IndiGo Airline did not offer frequentflyer or loyalty programs. It did not offer in-flight entertainment. And, akin to a low cost airline, passengers had to pay for meals on board the planes. IndiGo’s top management was aware that Indian customers did not want to shell out money to avail of frills on the country’s short domestic routes...........

Interaction with Customers: Serious Business for IndiGo

Ghosh commented, “I end up travelling at least twice a week on work. I find this a very fascinating part of my job because…I get to meet passengers…And there’s always something new you learn by talking to people…Unless I am running late from a meeting, I tend to arrive at airports about 45-50 minutes in advance...........

Being Proactive in Deploying Technology

IndiGo kept a check on its on-time performance by employing a technology called Aircraft Communications Addressing and Reporting System (ACARS). ACARS was a digital data link mechanism that transferred short and comparatively simple messages between aircraft and ground stations through radio and satellite..............

Winning over the Internal Customers

A service management expert who rated IndiGo to be the airline providing the best service among the domestic airlines pointed out that polite, well-coached and well-groomed employees were a key reason for the company’s exemplary service track record............

Focus on Customer Convenience

Since 2006, Indigo used a boarding ramp instead of steps. This made it easier for travelers with kids, the aged and those on wheelchairs to easily board the planes. If stairs were employed, aged individuals and children might not be able to walk fast. By employing ramps, the airline ensured greater number of individuals could board the plane and also get down the plane within a much more compressed time frame.............

Operational Efficiencies and Financial Prudence

Placing bulk orders for aircrafts helped IndiGo get good discounts from the vendor. Some experts estimated that IndiGo obtained a discount of more than 40% on the catalogue price. Supplier credits enabled IndiGo to function with limited capital, till turnover gradually increased to current levels. Also, the airline entered into 6 year lease agreements for the aircrafts purchased and sold by it to leasing companies............

Maintaining the Growth Momentum

Unlike its competitors which did not have a clear strategy with regard to an increase in their fleet size, IndiGo consistently added aircrafts to its fleet. For instance, from October 2011 to July 2012, IndiGo enhanced its fleet size by 29%. Despite increase in its scale of operations, IndiGo stood committed to the overall flying experience that it wanted to offer to its customers............

Cumulative Effect – A Dominant Position

As of April 2014, IndiGo accounted for a share of 31.6% of the domestic air travel market in India, in terms of the number of passengers flown. It had a clear lead over the runner-up, the Jet Airways Group, whose corresponding share of the market in the same month was 21.8% (Exhibit XI). As of July 2014, IndiGo had more than 78 aircrafts and operated roughly 500 flights every day, primarily to locations in India and also destinations overseas (Exhibit XII).............

Entry of New Players – A Cause of Concern for IndiGo?

Observers, however, wondered whether IndiGo would be able to sustain its leadership in the Indian aviation market given the entry of new players into the market. The foremost among these new players was Air Asia India which started its flight operations in India in June 2014. Air Asia India was a three way joint venture between the Malaysia-headquartered no-frills airline..............

Assignment Questions

I. Analyze IndiGo’s performance on the following parameters:

a. Internal business operations
b. External business operations

II. How did IndiGo bring about synergies in its internal business operations and external business operations?

III. Based on the case facts, what do you think have been the critical success factors of Indigo’s better performance over the years?

IV. ................

Exhibits

Exhibit I: IndiGo’s Expansion

Exhibit II: Indian Airline Industry – Problems Aplenty

Exhibit III: IndiGo's Aditya Ghosh

Exhibit IV: IndiGo’s High On-Time Performance

Exhibit V: Making Friends Everywhere

Exhibit VI: An Inspired Workforce

Exhibit VII: IndiGo’s Low Flight Cancellation Rate

Exhibit VIII: IndiGo’s Various Options to Pamper the Customers

Exhibit IX: Compelling Freebies

Exhibit X: IndiGo’s Good Service

Exhibit XI: IndiGo’s Market Leadership

Exhibit XII: IndiGo Vis-à-Vis Other Airlines

Exhibit XIII: Not Going Unrewarded

IndiGo Airlines: Market Leadership through Service Leadership

Synopsis

This case study enables a discussion on how services can be designed and managed to attain market leadership. IndiGo Airlines, which commenced its flight services in 2006, did not offer free food onboard or entertainment on-board, unlike full-service carriers. However, it focused on the efficient delivery of certain services or experiences that it believed mattered most to its customers, a strategy that resulted in it becoming a market leader.

Since the start of its flight services, IndiGo ensured that its aircrafts took off and arrived in time, that its aircrafts were neat and clean and that its cabin crew on board provided good service. This gradually resulted in several loyal customers of other airlines shift allegiance to IndiGo as they found it to be reliable. This was despite the airline not offering any loyalty or frequent flier programs. An important reason for IndiGo’s efficient service delivery was its human resources practices which ensured that its employees were properly trained and were given regular salary hikes and promotions. Another key factor was the proactive deployment of technology by the airline. The airline also ensured that it did not compromise on its profitability while usurping a greater share of the market. This resulted from it being prudent in fuel consumption and from adopting the strategy of acquiring aircrafts and immediately selling them to lessors at a premium. IndiGo’s profits were particularly conspicuous given the losses being incurred by most of its competitors and the huge debts that they had piled up. However, with the entry of Air Asia, a true-blooded low cost carrier, and the imminent launch of flight services by Tata-SIA Airlines, a collaboration between Tata Sons and Singapore Airlines, will IndiGo be able to retain its market leadership status?

Prerequisite Conceptual Understanding (PCU)/ Before the Classroom Discussion

This case study presupposes an understanding of the concept of services’ design and management. This would enable an effective discussion leading to practical solutions. The participants were asked to read the following to help them better connect the concepts:

• • Philip Kotler, et al., “Chapter 12: “Designing and Managing Services”, Marketing Management, 14^th Edition, Pearson Education, 2013 – To understand the concepts of customer empowerment, customer coproduction with specific regard to the incorporation of technology to help employees and customers, employee satisfaction, interactive marketing, best practices of top service companies with specific regard to strategic concept, primary and secondary service options and the five determinants of service quality
• • James L. Heskett, et al., “Putting the Service-Profit Chain to Work”, Harvard Business Review, July 2008 – To understand how a service-focused business should align its organisational resources to deliver better business results

Expected Learning Outcomes

• • How IndiGo became the market leader by fulfilling the five determinants of service quality
• • How technology can be employed to deliver superior customer service
• • What are some of the important determinants of employee satisfaction and how does employee satisfaction result in superior customer service?

Positioning/Case Setting

This case study can be used in the following course/module:

• • Introductory Marketing Management Course – Designing and Managing Services Module (as outlined under PCU) –To understand how the identification of the customer requirements and the appropriate delivery of the concerned services can help companies to increase their business

Assignment Questions

• I. Analyze IndiGo’s performance on the following parameters:
• a. Internal business operations
• b. External business operations
• II. How did IndiGo bring about synergies in its internal business operations and external business operations?
• III. Based on the case facts, what do you think have been the critical success factors of Indigo’s better performance over the years?
• IV. ..............

Case Analysis

The classroom discussion and analysis for this case study could be summarized through the Board Plan [Exhibit (TN)-I]. However, the classroom discussion was facilitated under three broad sections as explained below:................