INDIGO AIRLINES

Pricing Project

Submitted By – Group 4
RAVI SINHA -18020841213

RAHUL KUMAR RANJAN - 18020841175

TRUSHNA ATRE - 18020841191

NIKHIL NARAYANKAR - 18020841169

ANURAG SHARMA - 18020841153

ABHISHEK MEVAWALA - 18020841062

SHRIANSH VERMA - 18020841136

ARKA CHAKRABORTY - 18020841155

ABOUT

IndiGo (Inter Globe Aviation Limited) is an Indian low-cost airline, headquartered at Gurgaon,
Haryana, India. It is the largest airline in India with a 48.1% domestic market share as of June
2019. It is also the largest individual Asian low-cost carrier in terms of jet fleet size and
passengers carried, and the seventh largest carrier in Asia. The airline operates flights to 80
destinations – 58 domestic and 22 international. It has its primary hub at Indira Gandhi
International Airport, Delhi. Its total fleet size stands at 240 planes.

HISTORY

IndiGo was founded in 2006 as a private company by Rahul Bhatia of InterGlobe Enterprises
and Rakesh Gangwal, a United States-based NRI. InterGlobe had a 51.12% stake in IndiGo and
47.88% was held by Gangwal's Virginia-based company Caelum.

In January 2011, after completing five years of operations, the airline got permission to launch
international flights.

In January 2013, IndiGo was the second-fastest-growing low-cost carrier in Asia behind
Indonesian Airline Lion Air. In February 2013, following the announcement of the civil aviation
ministry that it would allow IndiGo to take delivery of only five aircraft that year, the airline
planned to introduce low-cost regional flights by setting up a subsidiary. Later, IndiGo
announced that it planned to seek permission from the ministry to acquire four more aircraft,
therefore taking delivery of nine aircraft in 2013.

In August 2015, IndiGo placed an order of 250 Airbus A320neo aircraft worth $27 billion,
making it the largest single order ever in Airbus history. IndiGo announced a ₹32 billion
(US$460 million) initial public offering on 19 October 2015 which opened on 27 October 2015.
PRICING STRATEGY

Indigo adopts a lost-cost strategy, like most of its other competitors in the market, but with
some added efficiencies that helps it stand out in the competition.

One service one fleet – 215 out of their 240 fleet sizes is composed of Airbus A320s and A320
NEOs. The fleet had higher fuel efficiency and at the same time they maintained strong
alliance with Airbus for flight maintenance.

Young Fleet – Indigo has an average fleet age of less than 7 years. A younger fleet leads to
lesser maintenance costs. Indigo intends to maintain a lower fleet age as all its aircraft are
leased for a period of 5/6 years. This way they avoid the mandatory aircraft maintenance
check which is done after 8 years of operation.

Fuel – Domestic fuel taxes are very high (30% per cent) along with an excise duty of 8.2%. This
results in fuel accounting for 45% per cent of total operating costs as against the global
average of 30-35%. Indigo’s aircraft try to save fuel by using software for flight planning which
optimizes for minimum fuel burning routes and altitudes and also by making use of latest fuel
saving technology. Indigo is the also the first airline to place order for the Airbus A320neo
family (which were received and started operations recently). These aircrafts claim 15% lesser
fuel consumption and 8% lower operating costs. The company also participates in fuel
hedging after it was allowed in 2007.

Robust Maintenance Contracts – Indigo has a1ower by the Hour contract with International
Aero Engines (IAE) (who supply the engine) that put the responsibility of performance on the
manufacturer. Indigo has such agreements with Airbus, as well as with their other vendors
for critical components. Such contracts lead to a reduced inventory of spares; also indigo
rarely faces the need to pull out their planes for repairs.

Lean Workforce – Per flight employees set by Indigo went down below 100 (96 as per latest
figures) as compared to 250 in Air India.

On-time Performance - Indigo also became the only domestic Indian airline to adopt RNP
approach (Required Navigation Performance) which in turn helped in fuel and cost saving and
faster turnaround at airports. The turnaround time for Indigo is a staggering 14 minutes. To
achieve this, it implemented the system of monitoring the small jobs with time targets like
loading, unloading, cleaning.

High Passenger Load Factor - Indigo also gradually expanded in all possible destinations in
the Indian market. It consistently tries to lower the flight to market ratio. For its routes, Indigo
followed hub and spoke model. It has consistently maintained load factors above 85% with
the latest figures (As of June 2019) suggest a PLF of 90.9%.

No Frills – The aircrafts operate with a minimum set of optional equipment, thus reducing the
cost of acquisition and maintenance and also keeping the lower weight and saving the fuels.
It also focused on no In-flight entertainment systems, more accessible e-ticketing and single
class configuration and looked for ancillary revenues.

The Indigo way – Indigo flies an aircraft for around 12 hours a day as compared to 8 to 10
hours a day logged by most of its competitors.

EVC Model for Indigo (2018-19)

Cargo/Excess Baggage
In this model, we take the base price of Spice Jet Airlines
The product variant whose economic value is deemed to be calculated is the passenger
service of Indigo
The differentiation elements in contrast to cargo/excess baggage in comparison to Go Air

• Larger baggage limit

• Inclusion of perishable goods

Reference value

• The Reference Price is = ₹80

Differentiation value

• Cost of larger baggage limit= ₹160

• Cost of carrying perishable good= ₹60

Total Cost = ₹300

Differentiation Value

EVC = Rs. 300

Cost of Larger baggage

limit= ₹160

Cost of carrying perishable

good= ₹60

Reference Spicejet Cargo=

₹80
Passenger Service
In this model, we take the base price of Spice Jet Airlines
The product variant whose economic value is deemed to be calculated is the passenger
service of Indigo.
The differentiation elements in contrast to passenger service in comparison to Go Air.

• On-time landing
• Better leg space
• Comfortable seats
Reference value

• The Reference Price is = ₹149

Differentiation value

• Cost of On-time landing= ₹50

• Cost of better leg space= ₹40
• Cost of Comfortable seats= ₹50

Total Cost = ₹289

Differentiation Value

Cost of On-time landing=

₹50
EVC = Rs. 289

Cost of better leg space=

₹40

Cost of comfortable seats=

₹50

Reference Go Air
passenger service= ₹149
Catering Service
In this model, we take the base price of Spice Jet Airlines
The product variant whose economic value is deemed to be calculated is the passenger
service of Indigo.
The differentiation elements in contrast to catering service in comparison to Go Air.

• Value Meal packs

• Cold Storage Food
• Specialty Foods
Reference value

• The Reference Price is = ₹329

Differentiation value

• Cost of value meal packs= ₹40

• Cost of cold storage food= ₹50
• Cost of specialty foods= ₹70

Total Cost = ₹489

Cost of value meal

Differentiation Value

packs=₹40

Cost of cold storage

EVC = Rs. 489

food=₹50

Cost of specialty foods=70

Reference Go Air
passenger service= ₹489
Pricing Strategies (2018-19)

• IndiGo revised its capacity addition for FY19 to 30% from 25%. Most analysts believe
that the aggressive deployment of planes should take its market share to at least
45% in the next three years from 43% at present.

• Among the listed airlines, the stock of IndiGo has a strong negative correlation with
Brent crude oil prices. According to an estimate of foreign brokerage Morgan
Stanley, Indigo’s EPS moves down 11% for every 1% increase in fuel prices. With
Brent crude oil prices falling 34% from their peak of $85 to $55.6 per barrel, there’s
scope for significant improvement in IndiGo’s EPS.

• Low-cost carrier IndiGo will look to start its China operations by the end of this year,
according to a top executive of the carrier.
The airline, which has a leadership position in the domestic market, is now looking at
increasing its international footprint and is inducting aircraft that have longer range
and more carriage capacity like A321neos. It also plans to induct A321LR later.
 EVC Model for Indigo (2015-18)
Cargo/Excess Baggage

In this model, we take the base price of Spice Jet Airlines

The product variant whose economic value is deemed to be calculated is the passenger
service of Indigo
The differentiation elements in contrast to cargo/excess baggage in comparison to Go Air

• Larger baggage limit

• Inclusion of perishable goods

Reference value

• The Reference Price is = ₹70

Differentiation value

• Cost of larger baggage limit= ₹175

• Cost of carrying perishable good= ₹50

Total Cost = ₹295

Differentiation Value

EVC = Rs. 295

Cost of Larger baggage

limit= ₹175

Cost of carrying perishable

good= ₹50

Reference SpiceJet Cargo=

₹70
Passenger Service
In this model, we take the base price of Spice Jet Airlines
The product variant whose economic value is deemed to be calculated is the passenger
service of Indigo
The differentiation elements in contrast to passenger service in comparison to Go Air

• On-time landing
• Better leg space
• Comfortable seats
Reference value

• The Reference Price is = ₹125

Differentiation value

• Cost of On-time landing= ₹60

• Cost of better leg space= ₹50
• Cost of Comfortable seats= ₹40

Total Cost = ₹275

Differentiation Value

Cost of On-time landing=

₹60
EVC = Rs. 275

Cost of better leg space=

₹50

Cost of comfortable seats=

₹40

Reference SpiceJet
passenger service= ₹125
Catering Service
In this model, we take the base price of Spice Jet Airlines
The product variant whose economic value is deemed to be calculated is the passenger
service of Indigo
The differentiation elements in contrast to catering service in comparison to Go Air

• Value Meal packs

• Cold Storage Food
• Specialty Foods
Reference value

• The Reference Price is = ₹300

Differentiation value

• Cost of value meal packs= ₹50

• Cost of cold storage food= ₹45
• Cost of specialty foods= ₹120

Total Cost = ₹515

Cost of value meal

Differentiation Value

packs=₹50

Cost of cold storage

EVC = Rs. 515

food=₹45

Cost of specialty foods=120

Reference SpiceJet
passenger service= ₹300
Pricing Strategies (2015-18)

• Existing market share is divided among – Indigo, Jet Airways, SpiceJet, Go Air and Air
India. When we look at the data, the market share by Indigo is increasing almost every
year on YOY basis. And,
around 2014, Indigo went for
price war strategy. It lowered
the prices for the domestic
flight to the lowest ones.
Below figure is a part of a
report by financial express
posted on 26 Feb 2014.
• It followed one service one
fleet strategy. The fleet had
higher fuel efficiency and
alliance with Airbus
maintenance. Per flight employees set by Indigo went down below 100 as compared
to 250 in Air India. Indigo also became the only domestic Indian airline to adopt RNP
approach which in turn helped in fuel and cost saving and faster turnaround at
airports. Indigo also gradually expanded in all possible destinations in the Indian
market. It tried to lower the ratio of flight to market ratio. It also opted for secondary
airport whenever possible. For its routes, Indigo followed hub and spoke model, more
accessible e-ticketing, single class configuration. It also focused on no In-flight
entertainment systems and looked for ancillary revenues.
• The Indigo way was to fly an Indigo aircraft for around 12 hours a day as compared to
8 to 10 hours a day as per data by competitors. Aircraft was supposed to be operating
with a minimum set of optional equipment, thus reducing the cost of acquisition and
maintenance and also keeping the lower weight and saving the fuels. Indigo also
implemented the system of monitoring the small jobs with time targets like loading,
unloading, cleaning. They have even turnaround a flight in 14 minutes’ record time.
Indigo was one the first companies to choose V2500 engines manufactured by Zurich-
based IAE to cut the fuel burn by almost 2%.
• Being no-frill as an added advantage, the airline offers lesser turnaround time. Indigo’s
strategy includes the holding of inventory of components by Air France under the tie-
up. So, it keeps Indigo free from bookkeeping. The training by the airline is such that
deplaning of passengers can be in 6 minutes, unloading the baggage in 10 min
resulting the turnaround time to be 22-25 min with the industry average of more than
30 minutes. The passenger seat is the lightest one with only 12.8 kg and paint covers
weight less than 50 Kg overall.
 EVC Model for Indigo (2012-15)
Passenger Service

In this model, we take the base price of Spice Jet Airlines

The product variant whose economic value is deemed to be calculated is the passenger
service of Indigo
The differentiation elements in contrast to passenger service in comparison to Go Air

• On-time landing
• Better leg space
• Comfortable seats
Reference value

• The Reference Price is = ₹125

Differentiation value

• Cost of better leg space= ₹40

• Cost of On-time landing= ₹60

Total Cost = ₹100

Differentiation Value

Cost of On-time
landing=₹60
EVC = Rs. 100

Cost of better leg space=

₹50

Reference SpiceJet
passenger service= ₹125
Catering Service
In this model, we take the base price of Spice Jet Airlines
The product variant whose economic value is deemed to be calculated is the passenger
service of Indigo.
The differentiation elements in contrast to catering service in comparison to Go Air

• Value Meal packs

• Cold Storage Food
• Specialty Foods
Reference value

• The Reference Price is = ₹300

Differentiation value

• Cost of value meal packs= ₹50

• Cost of cold storage food= ₹45
• Cost of specialty foods= ₹100

Total Cost = ₹195

Cost of value meal

packs=₹50
Differentiation

EVC = Rs. 195

Cost of cold storage

food=₹45
Value

Cost of specialty
foods=120

Reference SpiceJet
passenger service= ₹300
RECOMMENDATIONS

• Based upon the above calculations, IndiGo has to keep using its current pricing
strategies to maintain its Market Leader position.
• Also, it needs to keep employing Dynamic Pricing Strategy to keep its profits and use
Peak User Pricing to gain the maximum advantage.
• Going Ahead, it can offer higher levels of customizations based upon different price
levels to attract the customers looking towards High-end carriers with plenty of
amenities.
• IndiGo also must try to build its brand image, so as to bring in more customers and
also provide loyalty programs so as to increase a loyal customer base.