Low-Cost Carriers in India - Spice Jets Perspective

1.) How did the concept of LCC emerge in India? Which factors encouraged the growth of LCCs? Answer: a) The low cost carrier concept in aviation industry was introduced by Air Deccan in the year 2003.By this time many private airlines were closed or were about to be closed except Jet Airways & Sahara airlines. b) The entry of LCC Air Deccan brought the paradigm shift in the aviation industry with respect to the pricing of tickets.Looking at the success of Air Deccan many airlines followed the path. c) Also government focused on strengthening its infrastructure & aviation industry in particular, they introduced policies that encouraged the investments in the aviation industry making it a more open liberal business. d) As a result there was compounded annual growth of 19.14% in air passenger traffic & 9.91% in cargo movement from 2003-04 to 2007-08. e) The increased FDI , tourist inflow, higher corporate travel all complemented the LCC concept which ultimately contributed to the growth of the aviation industry. Thus these are the factors that encouraged the growth of Low Cost Carriers in India.

2) What factors should SpiceJet consider before strategizing its operations in India. Answer: Internal Factor Evaluation (IFE) :
Internal Strengths Low fares ASK Shorter Block hours 100% lease model Operating costs Internal Weakness Sensitive to ATF pricies in India 100% lease model Employee shortage Employee costs TOTAL WEIGHTED SCORE Weights 15% 10% 5% 5% 10% Ratings 4 3 3 3 3 Weighted Score 0.60 0.30 0.15 0.15 0.30

20% 5% 15% 15% 100%

1 2 1 1

0.20 0.10 0.15 0.15 2.10

Low-Cost Carriers in India - Spice Jets Perspective

Ratings Major Weakness Minor weakness Strengths Major strengths 1 2 3 4

From the above analysis the total weighted score is 2.1 which is below the avg score of 2.5 Therefore it can be said that Spice Jets Business was internally weak business.

External Factor Analysis (EFE):

Oppurtunities Country of Price sensitive customers Higher Household incomes Higher corporate travels & tourist inflows Govt policies Threats ATF high price in India compared to other countries ATF price fluctuation in India (region wise) Rental & Landing fees Poor Infrastructure Competition from other LCC airlines 25% 1 0.25 Weights 15% 4% 10% 8% Ratings 4 3 4 3 Weighted Score 0.60 0.12 0.40 0.24

10% 10% 8% 10% 100%

1 2 2 2

0.10 0.20 0.20 0.20 2.31

Low-Cost Carriers in India - Spice Jets Perspective

Ratings Major Weakness Minor weakness Strengths Major strengths 1 2 3 4

Total weighted score of 2.31 indicates that the business has slightly less than average ability to respond to external factors.

Competitive Profile Matrix:

Spice Jets Critical Success Factor Weight Ratings Weighte d Score Jet Airways Ratings Weight ed Score Ryanair Ratings Weight ed Score Southwest Ratings Weighte d score

Sales Market Share Fuel Cost Maintenan ce Materials Aircraft rentals Depriciatio n Employee Renumerat ion Intrests Total

15% 10% 25% 15%

1 2 1 1

0.15 0.20 0.25 0.15

2 3 2 2

0.30 0.20 0.50 0.30

3 2 2 4

0.45 0.20 0.50 0.60

4 2 2 3

0.60 0.20 0.50 0.45

10% 5% 15%

2 4 3

0.20 0.20 0.45

3 3 3

0.30 0.15 0.45

4 3 2

0.40 0.15 0.30

4 3 1

0.40 0.15 0.15

5% 100%

0.20 1.8

0.05 2.25

0.10 2.7

4 3.05

0.20

The Southwest Airlines is having better business compared to others globally.

Low-Cost Carriers in India - Spice Jets Perspective

3)What strategies could be adopted by SpiceJet to overcome the factors that inhibit the success of the LCC business model? Answer: Therefore from the above analysis the factors that SpiceJet should consider before strategizing its operations in India are: 1)The fuel costs should be controlled by proper planning as it is one of the major threats 2) Spicejets may increase flights to countries which are aviation hubs & where the ATF prices are considerably low for eg. Dubai & Singapore where it is 60-70 % less compared to India.This would reduce the burden of ATF prices to some extent. 3)Spice Jet should focus on the International flights and follow the strategies followed by worlds first international LCC Southwestairlines 4) Managing Employee Remuneration Costs Motivating Employees : Spice jet should give considerable attention towards the employee costs, & also make proper HR strategies to retain the employees.The employee loyalty needs to be improved by providing them proper appraisal & pushing them up the ladder in their career. 5) Reduce the flights to region where the infrastructure is very poor(if it is impacting the business tremendously), and increase the no.of flights on the routes where the passengers are more. 6) The competiton in LCC airline is tough and is increasing so there has to be differentiation, to have a competitive edge over the other competitors. 7) The disposable income of population has increased so Spice Jet should target at these segment of population by providing them discounted fares , and keep the pricing strategy as dynamic as possible. 8) Spice Jets may look up for entering into alliances with 49% FDI in order to expand their business domestic as well as internationally.