IT Strategy - Spicejet - Case Study & Recommendations - 2009

M a n i s h B a l l a l ( 1 9 )

N i r a j K o t h a w a d e ( 2 4 )

S a i r a m I y e r ( 3 4 )

S a n d e e p V a d n e r e ( 3 6 )

2 / 1 6 / 2 0 0 9

Analysis of Indian Aviation Industry : The Spicejet Story

IT STRATEGY – TERM PAPER


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TABLE OF CONTENTS IT STRATEGY – TERM PAPER .................................................................................................................................................. 2

HIGHLIGHTS OF SECTOR, INDUSTRY IN WHICH COMPANY IS OPERATING ............................................................................................................ 2 TECHNOLOGY IN AIRLINE INDUSTRY .................................................................................................................................................................. 10 INTERNAL ANALYSIS .......................................................................................................................................................................................... 15 LEVERAGING CRM INITIATIVES AT SPICEJET ...................................................................................................................................................... 22


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IT STRATEGY – TERM PAPER H I G H L I G H T S O F S E C T O R , I N D U S T R Y I N W H I C H C O M P A N Y I S O P E R A T I N G

History of Aviation in India: • 1932 - Launch of TATA airlines • 1948 - Air India international • 1953 - Nationalization of aircraft industry • 1986 - Private sector players permitted as Air Taxi • 1994 - Private carriers permitted to operate scheduled services • 2003 - Entry of low cost airlines

PEST Analysis of the Sector:

i) Conducive Factors

ii) Limiting Factors

Political Economic Social Technological

National and airport security

Income for salaried class up : 14 to 16 %

Increasing travelling lifestyles

IT revolution

FDI : 49 % in Airlines, 100 % in airports

GDP growth of 8 % - 9 % in last 5 years

Increasing business travelling

Online Ticketing

Freedom to determine fares

Nil Import tariff on Aircraft

Growing Middle class

Best price shopping services

Level playing field Seat inventory Pricing

LCC as mass Transport medium

Uniform aircraft types

Up gradation of airport infrastructure

Oligopoly structure of the market – Customer View

Air travel: from luxury towards necessity.

Safety Measures


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Political Economic Social Technological

Bureaucracy Tax & Tariffs: 8 % Import duty and 25 % - 33 % state sales tax on ATF

Lack of Skilled Manpower (In-flight staff

Night Landing facilities

International routes after 5 years

Pricing Strategy dependent on individual firm’s behaviour

Customer Service Operation during Winter

No clear policy for state carriers

International Petroleum Prices

Safety Concern (9/11, Sars)

Capital Intensive Technology

Industry Analysis:

Threat of new entrants

Entry Barriers

High start up costs – capital intensive industry Over-crowded low cost airline market (too many budget airlines in the Indian skies) Dearth of aviation professionals (pilots, aviation engineers) Limited infrastructure facilities Price wars against newcomers.

Exit Barriers

Long gestation period High fuel costs (contributes to 30% of the operating cost)

As the Entry and exit barrier is high, this has been the cause of only serious player getting into the sector and negating the effect of any fly by night operator. This brings maturity to the whole industry.

Net Impact - LOW

Bargaining power of buyers

Price dominated short-haul market with little or no product differentiation. Low switching costs Price conscious consumers - little or no customer loyalty.


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Bargaining power of buyers is high in LCC sector mostly because of the factor of low differentiation. In the full service air travel market this factor is present in full force. This is evident from flights on business timings being far more expensive than weekends or for Leisure travel.

Net Impact – HIGH

Bargaining power of suppliers

No control over ATF (Aviation Turbine fuel) prices Negotiate favourable deals with most of their suppliers ( eg., Airline operators do not have their

own catering department for on-flight consumables. ) Leased aircrafts Specialized spare parts and limited number of manufacturers

Net Impact – HIGH

Threat of substitutes

Videoconferencing and other telecommunication technologies Super fast trains for short haul flights

Net Impact – LOW

Rivalry among existing firms:

The following points have been considered while evaluating the internal rivalry amongst competitors.

Competitive and over-crowded market: The present list of low cost airlines in India includes Spice Jet, Go Air, Indigo, Jet Lite, Jet Airways, Sahara and Air India Express. Since the Indian air industry has been flooded with so many players, the LCC sector is very competitive and overcrowded.

Commoditized nature of product: Aggressive pricing, efficient distribution and innovative communication mixes: With the air fare almost reduced to that of train fare, the inception of no-frills airlines has unleashed a fierce cut-throat competition in the Indian aviation scenario like never before. In order to grab a bigger pie in the suddenly escalating numbers of train commuters turning towards air travel, all leading domestic airlines have slashed their fare rates and unveiled Advanced Purchase schemes (Apex) to take on the new challenger.

Differentiation: The LCC offerings can be differentiated based either based on the Customer base or the regional focus, and there are already players who are operating based on these strategies eg., narrow versus wide customer base,regional towns versus main cities


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Competition with conventional carriers: In many cases the LCC carriers have to compete with conventional carriers with low fares but a higher level of service (more frills and main airport servicing) owing to better resources .These conventional carriers are a big threat.

Consolidation in the market: With so many mergers, acquisitions and alliances (eg., Kingfisher Airlines acquired Air Deccan, Jet Airways acquired Air Sahara, merger of Air India with Indian Airlines and recently Jet Airways with Kingfisher) the margins for players are becoming smaller and smaller.

All these factors taken together make the net impact of the factor of internal rivalry as High.

The different factors are consolidated in the below table:

Threat of New Entrants

Buyer power Supplier power

Substitutes Internal Rivalry

Capital intensive industry - Long gestation period

Little differentiation between LCCs

No control over ATF (Aviation Turbine fuel) prices

Videoconferencing and other telecommunication technologies

Competitive and over-crowded market

Over-crowded low cost airline market

Price conscious -little or no customer loyalty.

Favourable deals with most of their suppliers

Super fast trains for short haul flights

Commoditized nature of product

Dearth of aviation professionals

Low switching costs

Leased aircrafts

Competition with conventional carriers

Limited infrastructure facilities

Limited number of manufacturers

Consolidation in the market

Price wars against newcomers.

High fuel costs (contributes to 30% of the operating cost)

Aggressive pricing strategies

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Market Trends – Emerging Market:

Well-suited to emerging markets of Asia - many first time travelers as well as budget conscious short-stay holiday takers.

Different Traveler tribes which may emerge in the next 10-15 years, and that have the potential to transform how the airline industry delivers products and services

Global Executives Elite business travelers that want a private jet type experience, predominantly

from emerging economic markets such as Brazil, Russia, India and China. Active Seniors:

The wealthy, healthy older travelers, aged between 50 and 75, that will continue to travel for cultural and leisure pursuits.

Cosmopolitan Commuters: Those that live in one city but work in another and will use air travel to commute.

Identifying the Market Drivers:

ATF prices Rising global crude prices result in higher ATF prices. Infrastructure


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o Currently there is a huge Infrastructure constraint in terms of Airport facilities. Though the government has initiated plans for infrastructural developments, any delay in infrastructure development would aggravate the problem.

Availability of skilled personnel Shortage of Pilots due to the growth in the Industry. Gestation period of 3 years for getting a

commercial pilot license. Training of Cabin crew Ground and Maintenance staff availability

Competitive Analysis:

Consolidation to result in increase in fares and yields • Consolidation in the domestic aviation sector. From a fragmented sector with more than 10

players, today there are 3 major players, and a couple of other smaller players in the LCC space.

• The top three players together have a combined market share of around 80% Government plans to invest Rs 40,000 crore during the 11th five-year plan to improve airport infrastructure in India

Cost Comparison: Domestic Peers:

Cost leadership gives Spicejet an edge over peers:


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Available Seat Kilometers (ASKM) : Represents the aircraft seating capacity multiplied by the number of kilometers the seats are flown

Cost and Value Drivers:

High seat density o Single economy class having 189 seats. o Focuses on maximum space utilization for generating more revenue per aircraft.

Direct Distribution of Tickets o Sells its tickets via the Internet or call centre route.


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o Bypasses travel agents commissions, and expensive GDS (global distribution system). High aircraft utilization

o Consistently reporting high aircraft utilization (around 12 hours a day), in line with international benchmarks.

o Because of its high on-time performance (82% within 15 minutes) and a low turnaround time of 20-25 minutes No loading of meals or complex cargo and faster check-in system helps in reducing turn-around time.

T E C H N O L O G Y I N A I R L I N E I N D U S T R Y

Information Technology is playing a crucial role in airline industry and will assume further importance in the coming future.

As airports were flooded by more and more passengers it became more and more obvious that only the technology of the integrated information systems can be the way leading to the future. As airlines look forward, innovation and a unique relationship with passengers and the air transport industry will continue to be key to the future. Innovation and partnership will have to play a major role in airlines’ strategy, which focuses on Internet Protocol technologies, end-to-end services to the desktop and airport integration. Airlines will have to continue development such as on-line distribution, ticketless travel, self-service ticketing and smart cards. There is a great opportunity for the integration of airport and airline systems, along with new applications for biometric security, electronic passports, wireless bag tracing and much more. New Technological Areas in the Airline Industry

Carriers have been able to add more functionality, especially in customer service areas ranging from check-in desks upwards. Furthermore, airlines have also been able to integrate internal systems. This relatively under-developed area may have the strongest potential for future growth. The drastic effect in the year 2001 on airline ticket sales forced carriers to reappraise their distribution systems, focusing sharply on e-commerce. Online services can be configured to include specialist applications such as • content management, for example – to make the site easier to navigate and use; • business intelligence tools – for in-depth management information; • personalization software – that will allow the site to be customized for each individual user. This kind of solution is increasingly integrated with other processes which, if not underway already, are certainly under development by many airlines today, intending delivering effective online customer services at the lowest cost. For example, online sales can be backed up with streamlined fulfilment procedures that simplify the administration of high-volume, high-value transactions on which the air travel industry increasingly depends. Automating time-consuming manual processes improves efficiency, contains costs and frees staff for more profitable activities. It also plays an important role in enhancing business knowledge, collecting data as transactions are processed and delivering valuable management


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information that can help airlines shape their marketing strategy. Other areas of airline operation can also benefit from some of the same processes and e-commerce integration expertise. Airline catering, for instance, requires rapid, streamlined communication with business partners. The technologies that will revolutionize the airline industry are : Internet Technology

Internet Technology has become recognized as a major enabler for aviation to work effectively and safely, while achieving substantial cost savings. If Internet Technology plays a critical role in determining how the airlines compete with one another, there is also a need for it to serve common purposes. At present carriers have two main strategic goals: to get closer to their customers and to reduce costs. And they are looking to Internet Protocol to deliver both. It is clear that strategy-planning horizons have been falling as the speed of technology change increases. Nowadays airports are at the very early stages of leveraging the power of the Web. The first initiative airports can take is to improve their websites. Three pieces of information most travellers require are the local weather, the local time and the exchange rate. Few airport websites currently provide this information. The initial stages of using information technology involve attempting to replicate the physical world in cyberspace. Accordingly, airports are trying to move merchandising to the Web but it is highly unlikely that the current variants are proving to be successful. The devil, however, is in the details. Superior technology alone is not always enough to get ahead. For example, pre-ordering foreign currency and duty-free items is useful in that it saves the time one might spend browsing at duty free shops. Pre-ordering currency is a valuable service only if the currency one requires is expected to be in short supply. This is unlikely to be an attractive service for those embarking from countries with international currencies. Moreover, consumers will unlikely pay for currency using credit or charge cards due to the high interest rates associated with cash advances. Through closely monitoring and collecting information on their stakeholders, airports can provide data on the local community to visitors and vice-versa. For example, it is possible for a first time visitor to a particular city to obtain a list of good restaurants from websites. But in order to make it more valuable, that information has to be cross-referenced from other sources to determine if the best restaurants are located within a convenient distance from the hotel they are staying at. How airports use the Internet is likely to reflect how airports view themselves. A very minimalist view would be that an airport is an infrastructure supplier or a supplier of an intermediate input in providing air transportation services. What else do airports do? They provide some facilities, either themselves or through tenants, for the passengers they serve. The facilities vary considerably with airports, however, most if not all airports have health facilities, currency exchange booths, duty-free shops and restaurants. Other tenants could provide travel-related services such as rental cars, hotel services, tour operators etc. In addition airports provide parking facilities, ground transportation links through cars, taxicabs, buses and rail. Airports also provide a variety of services to airlines, including air-traffic control, baggage and cargo handling, catering, aircraft maintenance and land for cargo handling terminals and hangers. Lastly, they provide facilities to Government departments for immigration, customs and possibly health services. Although IT has been long at the heart of every airline operation the truth is that now it is time to reorganise the future of the industry. This future will be characterized by three critical success factors – lower costs, increased profitability and improved levels of customer service. s-Travel Initiative to Increase Security of Global Aviation Major air transport organizations have teamed up with world leading smart


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card and biometrics integration companies to develop and trial a ‘secure-travel’ initiative. The s-Travel project aims to achieve the highest level of identity verification for frequent travellers and to contribute to a secure global air transport system. The European Commission and a Swiss-funded consortium will undertake trials in Europe, with a view to expanding the initiative globally. s-Travel will include digital authentication to enable secure access to airport facilities for frequent air travellers. The project team will develop and implement systems to authenticate passengers at both check-in and boarding stages. The solution will also enable effective control of airport and airline employees’ access to restricted areas, as well as electronic access to computer systems. To ensure the provision of an interoperable global solution, IATA and SITA will lead the agreement of standards. The s-Travel system will combine a certification authority, smart-cards technology and biometrics technology integration. To ensure that the s-Travel system does not infringe upon the privacy of frequent travelers, the consortium will work closely with the EC and relevant data commissioners to resolve confidentiality issues. Security Solutions

The most notable change will emerge in the relationship between the passenger and the airline. Travellers will accept new security requirements. But they will also be capable. They’ll accept positive bag matching, but increasingly they won’t accept lengthy delays and irritations. The air travel industry has to make flying safer while speeding up the process of getting on a flight. In the near future, we can expect to see secure integrated networks within airports by pulling together existing capabilities, such as baggage reconciliation or border control with third party technology in areas like biometrics and explosive detection devices. In spite of some improvement at the turn of the year, it has become clear that the air transport industry will not bounce back in terms of growth and profitability as quickly as it fell into trouble. Improved security has become a vital factor in efforts to revive the fortunes of the air transport industry. Vendors have responded to last September’s terrorist attacks in the US with the launch of Intelligent Aviation Security Solution – a robust platform for governments, airlines, airports and cargo agents that is available now. Pick up any information technology magazine in the past couple of months and you will see that the emphasis has been firmly on security. Airlines need to know exactly who gets on aircraft and must be sure, that along with their baggage, they have been properly screened. Commonuse security equipment will allowshared biometric devices in airport common use areas to be accessed by different agencies and airlines to serve their own security applications. The resultant shared environment for airport, airline, security and handling agents would be a secure, common platform. One of the major requirements of the new legislation is baggage screening. This effort is designed to prevent the loading of unaccompanied baggage on aircraft. Every checked bag on every flight must be either screened for explosives – by machines, specially trained dogs, or manual searches – or each piece must be matched to a passenger on the plane. The issue is global, and for reasons of costs and time, the best option is the existing technology that matches baggage with passengers, but as procedures for baggage handling – including screening, reconciliation and tracking at the airport – are evaluated, it is important to reassess Positive Passenger Bag Match (PPBM) based on today’s environment. PPBM saves airlines millions of dollars in mishandled baggage costs and improves customer service. Inconvenience to passengers would be minimal to none. The scanning technology knows exactly where bags are loaded on the aircraft, so if a bag must be removed because its owner does not fly, that retrieval can be done in a matter of minutes. Without this technology handlers would need to off-load each bag and inspect the tags to find any orphan luggage, taking almost an hour. There is no question that airports and airlines can make this an effective solution


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and avoid long delays searching for unaccompanied baggage. Possible Choices for Improving Air Transport Information Systems Many vendor companies are currently re-organizing and investing strongly in technologies focused in improving customer service changing – fromself-service kiosks to check-in via mobile phone services, to baggage and airport management services, to electronic visas and in-flight e-mail. For the airlines, the prime objective remains: optimising revenues while maximizing customer relationships. What has changed is the variety and scope of channels available for distribution that the airlines want to control. Online electronic ticketing must be integrated with frequent flyer programmes and yield management will continue to develop as passenger demands for price competitiveness and transparency increase. Simplify Passenger Check-in One possible goal is to simplify the check-in process. Through the use of a Common Language Front-end to host check-in systems [4], agents and staff see the same screens no matter what host system they access. Agents sign in only once, after which hosts are accessed by simply entering the flight number associated with that host. Built around open systems standards, vendors offer a platform for additional integration and customisation. Using system-wide information available from each centralised check-in host and easy-to-use presentation, the staff will have automation that is dedicated to customer service. Latest Check-in solutions incorporate the latest PC capabilities to help airport staff perform both simple and difficult passenger check-in transactions. For example, graphical windows-style presentations simplify passenger check-in. User prompts, color-coded screens, drop-down menus and dialogue boxes allow agents with minimal training to quickly complete passenger check-in. Edit checks at the PC level prevent wasted typing and considerably reduce transaction costs. Within seconds, data is displayed on the screen, and agents can verify passenger requests for special services. In this way passenger and baggage check-in is quick and requires minimal agent interaction. Increase Agent Productivity while Better Serving Customers

Airport staffs are the customer representatives. And a customer’s perception of an airport can be strongly influenced by the service they receive. Service that is personalised and efficient wins loyalty for operation and helps recurring business. A good information system enables airport staff to provide the utmost in customer service. Onscreen user guide, customised workflow design, and other easy-to-use features: • Allow experienced agents to spend more time to important personal contact with passengers, because routine check-in activity is performed quickly; • Enable new agents to become proficient quickly, without lengthy on-the-job training; • Reduce initial and refresher training for new and experienced agents; • Open new avenues of sales, based on improved customer service and accessibilityof pertinent passenger data; We have to know that improving customer service while increasing staff productivity is impossible without the right tools. Empower Airport Staff

Latest Check-in solutions provide staff with much more versatility than ever before. The graphical screens let airport staff customise screens to best fit its check-in and operational environment. Changes can be made quickly and easily and can be adapted to one location or all locations, depending on the needs of each airport.


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As an airline, airport operator, or independent company supplying ground handling support for other airlines, wants to provide the best service possible, vendors provide the capability for airport staff to focus on customer service. They no longer need to concentrate on the computer processing aspects of their job, but the system provides additional information, special promotions, and personalized service to customers. Internet, intranet and e-business solutions play an increasingly crucial role in transportation. Migration to network computing and Internet Protocol solutions are critical to the air transport industry. In this field, vendors have achieved a position as recognized leaders for the industry, providing the infrastructure for IP-based services like e-business and e-commerce, high-speed connectivity and integrated data, voice and video. As the air transport industry evolves, its applications are increasingly integrated within an IP environment. Vendors’ range of integrated industry solutions and applications covers every step of the journey. This includes reservations and bookings; freight movement; airport check-in, departure control and baggage management; flight management and operations; and aircraft maintenance and engineering. Offering IP access, these value-added solutions improve the passenger experience, streamline and integrate airline and airport operations, and enable efficient communications to support aircraft maintenance, safety and security processes. Airports systems integration capability brings together existing airport products and third-party products in order to provide vendor-independent, best-in-class solutions. These enable airports to benefit from greater efficiency and effectiveness, including improvements in productivity, cash flow and profitability, as well as safety and service. For catering logistics management, vendors have developed a new solution extending an airline’s catering supply applications over an extranet, helping to improve catering management efficiency and reducing costs through the use of Internet technologies. Vendors provide a range of aircraft data, voice and fax communications solutions for aircrew, systems and passengers as well. Conclusion

The air transport, information and telecommunications industries have come a long way. The airline of 2000 has at its fingertips sophisticated desktop and Internet technology, in the form of powerful personal computers and connection to a wealth of information on corporate intranets, through e-mail and the Internet. In the airport industry, circumstances have changed in recent years in a way that suggests that now competition is more important. In travel industry, the pressure to provide better customer service has never been greater. Yet the pressure to reduce operating costs is equally strong. Airport automation can play a key role in attaining these goals, and today many innovative solutions are available to assist. To meet these challenges, there are plenty of software solutions that help airports, airlines and ground handling companies distinguish themselves by making travel both convenient and easy. A good information technology enables operation to run efficiently, while emphasizing customer service. Technology has the potential to answer the demands of politicians and the travelling public – increasing the level of security, without creating excessive time delays and without adding significantly to the cost of travel. No doubt, the research on these topics will go on as the industry continues to evolve in the future.


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I N T E R N A L A N A L Y S I S

Resources:

SpiceJet is the second largest low-cost airline in India. The company was originally promoted by the SK Modi Group under the name ModiLuft. It was acquired by Royal Holding Services (Kansagra family) in 2000 and restarted operations in May 2005. SpiceJet flies a single aircraft type fleet (Boeing 737), which allows for greater efficiency in maintenance, and supports its low-cost structure. Currently, it has a fleet of 14 Boeing 737-800 aircrafts in single-class configuration with 189 seats. It flies to 15 destinations, and plans to include two more by next month. The airline’s new fleet of aircraft is backed by cutting edge technology, and infrastructure. It has maintenance support from KLM and state-of-the-art technology from world leaders like Star Navigation, Russel Adams and Tech Log. SpiceJet has a partnership with Navitaire, the world’s renowned low-cost support system for reservations and revenue management for providing e-booking and e-ticketing services.

SpiceJet follows a pure LCC model –single aircraft type, point-to-point service, and quick turnaround time for higher asset utilisation – which has been successful globally. It has positioned itself as a niche player focusing on profitability rather than chasing market share. Low-cost airlines like Southwest Airlines (based in Dallas, Texas, US), RyanAir (Europe's largest LCC, headquartered in Dublin, Ireland) and EasyJet (based in London) have shown sustained profitability over the years.

SpiceJet operates most of its flights between profitable metro routes to optimise its load and yield (average revenue per passenger). It currently operates from 16 destinations with more than 700 flights a week. 56% of these flights originate from Delhi, Mumbai, Hyderabad and Bangalore. During FY07, Delhi and Mumbai accounted for around 40% of the total domestic air traffic in the country.


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Value chain Analysis:

10

SpiceJet: Value ChainMinimum Corporate HQ

Low Cost Training

InternetBoeing

Discount

Quality Training

Low Cost Suppliers

Airport Agreements

No Frills

Low Cost*

Quick Turnaround

Reliable Service

Low Cost Promotions

Free Publicity

Controversial

Internet Sales

Yield Management

Limited Resources

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High Productivity

Inbound

Logistics

Operations Outbound

Logistics

Marketing

& Sales

Service

HRM

Infrastr.

Tech. Dev.

Proc.

Limited Crew

Internet Information

Alliances

Management Control

Integrated Systems

Outsourced

In-houseLow Tech Marketing

Internet Sales

Private

Performance Contracts

n/a

Low Cost

Low Cost Competitive Advantages emerging from Value-Chain:

Online Bookings One Class Travel Ticketless Boarding Unallocated Seats Flying to Secondary Airports Point-to-Point Flying In-house Marketing No Frills Reduced Turnaround Times No Refund Policy Corporate Partnerships No Cargo Service Bargaining Power New Aircrafts Owns Own Fleet Limited Airport Transportation Advertising on Airplanes Yield Management

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o Performance and customer satisfaction: From aircraft to crew and ground staff the focus is on performance. Each SpiceJet employee is groomed to be smart, friendly, efficient and well-informed, ensuring that any interaction will make you feel welcome and looked after. Experienced pilots, well-trained cabin crew will make every flight a comfortable one. The philosophy is no-frills but high-performance.

o Safe Air travel: SpiceJet invests heavily in safety, impeccable maintenance and a high level of expertise. Experienced pilots, engineers and maintenance crew go through rigorous training and are hand-picked for their technical knowledge and expertise. So you can rest assured that there is no cut-back in this key area of modern day flying.

Objectives, milestones o SpiceJet has unveiled a phased capacity expansion plan to meet its growth

objectives. It started operations with a fleet of 3 aircrafts, which it has now increased to 14. It plans to add another 12 by FY10E, which will take the total to 26. During the time when the domestic market was mired by over capacity and fierce competition, SpiceJet was able to increase its market share, while maintaining its load factor. With an average age of 2 years, its fleet is also among the youngest in the country.


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Leadership:

SpiceJet's key management personnel are all senior, seasoned professionals and have significant international experience in both launching and managing low-cost airlines. With thousands of cumulative man hours in the industry, the management is committed to bring to customers in India all the benefits of the global revolution in the skies. SpiceJet aims to make travel comfortable, affordable and refreshingly efficient experience for all.

Competitive Strategies:

The competitive strategy of SpiceJet is based on Cost Leadership. The company believes in the philosophy of delivering high customer value at low fares.

Pricing: Innovative pricing has also been central to the company's success. SpiceJet started off its services with a revolutionary pricing of Rs. 99 for the first 99 days. This was followed by air tickets priced at Rs. 500 and Rs. 999 -- a pricing strategy that continues. As a result, the airline's prices compete with first-class Indian railway fares.

Online ticketing: Unlike its competitors, SpiceJet follows 100 % online ticket booking with maximum benefit has been passed to the customer.

Maintaining Similar Fleet with single class seating: Unlike other players, the company maintains similar fleet which results in lower pilot and maintenance costs. Its aircrafts’ have single seating arrangement which leads to higher utilization of the aircraft.

Technology: "SpiceJet's focus on technology innovation ranges from the choice of the aircraft to the winglet design. It has Boeing 737-800 and 737-900 which are the preferred aircraft models for reasons of operational efficiency and fuel economy, with the latter introduced last year to carry more loads in busy, slot-constrained airports, such as Mumbai, to better utilize existing slots

SpiceJet has also focused on the curved winglet design which reduces noise and improves fuel economy by 2-3 per cent. The company has also expanded inner aircraft room by reducing unnecessary storage areas and allotting them to passenger seats.


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Hedging fuel prices: The airline has recently started hedging fuel and is the only carrier in India to do so. It was buying fuel from MCX at the $90-110 range against the market price of $ 130. This gives it a huge relief compared to other operators.

Relationship with suppliers: In an industry were heavyweights are notorious for delaying payment to the supplier, SpiceJet pays suppliers on time and so its costs are 25% lower than its competitors for things other than fuel

Unique business model: Most of its senior officers have had stints with FMCG companies so they bring in a certain FMCG approach to aviation. They perceive LCCs much like consumer goods , with on-line distribution and fast turnaround time. While most LCCs around the world fly leisure traffic, Spice-Jet relies on business travelers to shore up its bottom line. About 44% of its passengers fly for business and this is driven by the choice of cities it flies to. Incidentally, the carrier was the first to connect Tier II cities, and start a night flight to Vizag. In addition to this, the company has borrowed best practices from international low-cost operators, such as Easy Jet and South-West Airlines. This has paid off well, as the airline built up an 86 % on-time reputation coupled with a Technical Dispatch Reliability of 99.6% making it an airline with least cancellations a legion of loyalists with 40 % repeat flyers.

Marketing Strategy: SpiceJet has a unique marketing strategy that focuses on word-of-mouth marketing, supported by print and Internet media initiatives. To build further on its branding value, SpiceJet has introduced on-board merchandise sales such as goggles, airplane models, perfumes, caps and watches. Sales of branded merchandise are also be available through the company's website.

All above factors have helped SpiceJet to maintain its Cost Leadership status. This can be further substantiated from the fact that In spite of hue and cry in aviation sector in recent past , SpiceJet was the only airline to cut prices in Oct 2008.

Corporate Strategy

As a part of its corporate strategy SpiceJet has entered into various tie-ups to reinforce its position in LCC area. For instance it has tie-up with Star Navigation, Russle Adams and Tech Log for aircraft technology. It has acquired know-how for its online ticket booking from its partner Navitaire, world’s renowned low-cost support for reservations and revenue management.

Earlier this year, Wilbur L. Ross, Jr., Chairman & CEO of WL Ross & Co, pumped in Rs 421 crore into SpiceJet. It is worthwhile to note that nowadays all airlines in India are incurring heavy cash out flow due


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to higher oil prices but this capital infusion would allow SpiceJet to last several years even if oil stayed at $130 per barrel

Contingency plans:

The dynamics of the market are the basic force behind the contingency plans. A slowdown in passenger traffic growth and, till recently, rising jet fuel prices, all airlines including Jet Airways have been reeling under losses. Despite the present grim scenario the under-noted strategies can be of use :

• Online ticketing: To boost the market Spicejet can offer some discount on advance booking. This will not only make the deal with Spicejet more attractive but also can help a bit in arresting negative/nominal growth in the private aviation sector. Definitely, this measure is a short term measure and can be changed accordingly, once the market improves.

• Withdrawal of congestion charges: Domestic carriers charges about 150 rupees as congestion charge per ticket, a fee to cover additional flying time due to heavy traffic at airport terminals. Looking at the present scenario and to attract passengers in a short term these charges can be waived off.

• Raise funds for working capital : In a difficult situation like the industry is facing presently the payment of dues to oil companies and airport operators requires additional working capital. In addition to have talks with the Indian financial institutions, Spice Jet must also target private funding from the investors from Middle East, which is still in a healthy state and has not been effected that badly from the prevailing slow down around the globe.

• Strategic alliance with other players: Very recently the aviation industry had seen an strategic alliance between the two majors, Jet Airways and its main rival Kingfisher Airlines, under which they had planned to cut costs by sharing ground-handling facilities, and pilots, and rationalize routes. In the present grim scenario, Spice Jet can also explore the same kind of alliance with other private players in the industry to overcome from the losses incurred in the recent past.

• Procurement of ATR aircrafts: Till today, Indian civil aviation market is dominated by jet airliners. The Spice Jet must target ATR turbo props, 66 seater aircrafts, which are more fuel efficient, as jet fuel prices have seen a wide variation and there has been an overall increase in the operational costs. ATR operation is viable if it is operated within a distance of 500 nautical miles.


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The government has recently reduced sales tax on such turbo props to 4 per cent to encourage deployment of fuel-efficient aircrafts. Apart from saving on fuel cost, the ATRs will help Spice Jet to operate services to non-metro feeder routes and shall provide an opportunity to increase the customer base also.

As evident from the internal analysis it is clear that to survive in a highly competitive environment Spicejet needs to create a sustainable competitive advantage. Information Technology has grown from being just an enabler in the value chain towards being an integral component of the growth strategy.

Spicejet has been leveraging various enterprise packages such as CRM application to gain a competitive edge. Following is the detailed diagrammatic representation of IT Strategy framework deployed by Spicejet.

L E V E R A G I N G C R M I N I T I A T I V E S A T S P I C E J E T


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The plan and practice at SpiceJet:

Using Analytics for better informed decisions:

“The Plan and Practice of managing

the lifetime relationship with your customer.”

“The Plan”: Every successful endeavor

requires proper planning. Successful CRM rarely happens

by chance. Many organizations jump to implementation

w/o proper planning.

“The Practice”: Systematic

implementation of your plans. Should

produce measurable results. Should be

evaluated and refined over time.

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packages?

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Those who like new ideas?

Guest Anniversarys/Birthdays

Interests (e.g. Books,

Gourmet food)


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The touch points at Spicejet

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