OPERATIONS MANAGEMENT- FINAL PROJECT

G10 Anand Bhagwani

G20 Malipeddi Abhilash Gupta

G30 Jyoti K

G40 Shubham Negi

G50 Ratnadweep Saha

G60 S Shyam
Business Objectives

IndiGo’s business objectives are clearly laid out, which is as follows:

The distinctive way by which IndiGo has shown its competence can be tracked qualitatively as
well as quantitively with the help of the following:

• The only Indian Airline globally to be ranked amongst the top 20 mega airlines for best
on-time performance 2 years in a row
• Best Low-Cost Airline, Central Asia - India, 9 years in a row
• Passenger Choice Award based on customer feedback

Successful businesses have a unique way of consistently aligning their business objectives which
are set by way of the Vision and Mission statement and creating value to customers day in and
day out. The tagline of Indigo says; ‘On time, Every Time’ and IndiGo has strategically
pinpointed its 3 pillars, which are:

• Offering Low fares

• Being on-time
• Delivering a courteous and hassle-free experience

As of December 2019, IndiGo is India’s largest passenger airline having a market share of 48%,
which is the outcome of consistently performing since 2006 and at present, it has grown leaps
and bounds by serving to 52 domestic destinations and 16 international destinations with a fleet
of 217 aircrafts.

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About the Aviation Industry

India is the 7th largest Civil aviation market in the world as per the International Air Transport
Association (IATA). The expectation from top 10 Global Air Transports markets from 2017-
2037 is as follows:

As per the image, India will be the 3rd largest aviation market by 2027, which showcases the
significant growth potential the Indian market has.

The current aviation industry is primarily categorized into Full-Service Carriers (FSC) and Low-
Cost Carriers (LCC) and the prime concentration of the routes revolves around the locations-
Bengaluru, Chennai, Delhi, Hyderabad, Kolkata and Mumbai. The landscape of the Indian
aviation industry is as follows with major players ranging from IndiGo, Air Asia, Air India,
GoAir, Jet Airways, SpiceJet and Vistara.

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Having a look at the domestic passenger traffic from FY2010 till FY2019, the growth is
exponential and can be tracked with the help of the data being presented by Directorate General
of Civil Aviation (DGCA):

The data clearly shows the passengers scheduled by domestic carriers are clearly on the rise with
each passing year and the growth is exponential in nature, especially for the passengers. The
clear factors are India’s low per capita income and price-sensitive consumers have led to a spurt
of growth in Low-Cost carrier segment.

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Key Growth drivers for the Aviation industry

The Aviation Industry, having seen an exponential growth over the past few years has a set of
growth drivers which are pertinent to understand. The key drivers are as follows:

• Growth of Middle-class population: The demand for air travel has been on the rise
especially from the Low-Cost Carriers segment, which come from the rising middle class
with a proportionate increase in disposable income. By 2037, 359 million passengers will
be added, comprising mostly of the middle segment as per IATA data source.

• Expansion in Aviation infrastructure: With increasing FDI inflows in this sector, a

leading report from IBEF mentions, India is expected to receive USD 5 billion
investment in the coming 5 years, which would be used for expanding the infrastructure
to accommodate the demand.

• Rising medical, education and business travel: With roughly 40-50% population in India
belonging to the age group below 35 years of age, travelling frequency has increased due
to various reasons like, medical, education and business, which further propels the
growth of the aviation industry.

Pitfalls in Operations in the Aviation industry

Operations planning in aviation industry is a complex process and difficulties are categorized in
the following manner:

• Demand Forecasting:

The demand forecasting models in general, in this industry have a grey area and any
fluctuations in the demand, impacts the profitability for the airlines as well as affects the airport
authority in terms of creating a better airport-related plans based on these estimates. Therefore,

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 airlines focussing on the demand estimation to need to deal with respective fluctuations based
on the demand forecasted, which involves uncertainty.

• Fleet assignment:

The Fleet assignment problem deals with the assorting of each aircraft type to the specified flights
and routes based on the potential profitability, capacity and any equipment. The flying
performance is different, which can range from flying attitude, voyage range, climbing ability,
maximum take-off and its internal maintenance. The constraints involved are multi-fold and are
difficult to predict based on real-time basis irrespective of the available algorithms.

• Crew scheduling: Total quality management focusses on each employee’s relevant

contribution in managing the operations of the company leading to operational efficiency.
Hence, crew scheduling deals with assigning employees with jobs. Crew scheduling is
complex due to the availability of pilots with pilots being comfortable with selected aircraft
in the similar fleet type. The reason why crew scheduling matters the most, is because the
cost of crew for airlines is the highest after the fuel cost.

• Runway Scheduling: Time is money is especially true in the aviation industry. Capacity
expansions require massive investments and airport terminal areas are considered to be the
critical bottleneck resource as the operations involve air traffic control, aircraft arrivals and
departures and taxiway operations from the runway to assigned gates.

The Aircraft sequencing is a hard-combinatorial optimization problem with unlimited constraints

having an impact on an airline’s operational efficiency, profitability and market share.

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IndiGo’s Operational Efficiency:

The operational highlights of IndiGo from the current year’s annual report tell a story of its
operational efficiency of managing its fleet, passenger load factor, reduction in block hours to
name a few. The table below explains the same in detail:

The reasons for an exceptional performance in operations management is signified by the

following 7 reasons:

1. Unique aircraft type:

Indigo's entire fleet consists of A-320-232 aircraft while Air India, Jet Airways and
Spice Jet use 10, 9 and 3 different types of aircraft respectively. This leads to greater
flexibility by taking advantage of the use of the same crew from pilots to flight
attendants to ground force, thereby reducing the costs of hiring, training and
upgrading.

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2. Economy Class:

Having only Economy class means that Indigo does not have to spend time, money
and crew on different classes of passengers. They also do not need to maintain
expensive lounges at airports, which further reduces costs.

3. Young fleet:

Indigo has an average fleet age of less than 3 years. A younger fleet results in lower
maintenance costs. Indigo intends to maintain a lower fleet age since all of its aircraft
are rented for a period of 5 to 6 years. In this way, they avoid the mandatory
maintenance check of the aircraft which is carried out after 8 years of operation.
(These checks generally take up to 2 months during which the aircraft remains
unusable)

4. Fuel:

Internal fuel taxes are very high (30 per cent) with an excise tax of 8.2 per cent. As a
result, fuel accounts for 45% of total operating costs, compared to a global average of
30%.

Indigo planes try to save fuel by using flight planning software that optimizes routes
and altitudes of minimum fuel consumption and also using the latest fuel saving
technologies. Indigo is the first airline to place an order for the Airbus A320neo family
(which has been received and started operations recently). These aircraft claim 15%
lower fuel consumption and 8% lower operating costs.

Indigo was among the first airlines to fly the aircraft to the terminal with one engine,
stopping the second engine to save fuel. The company also participates in fuel
coverage after its authorization in 2007.

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5. Route planning:

Indigo operates fewer destinations than its competitors but with a higher frequency -
with a fleet of 102 aircraft for 36 destinations. In comparison, Spice Jet flies to 46
destinations with 58 planes.

The network cards of all Indigo destinations are connected to at least 2 or more
destinations, which is not the case for its competitors. This means that Indigo keeps
its planes in flight longer and saves on airport costs. This leads to Indigo having a high
aircraft usage rate of 11.5 hours per day per plane. It also means that customers do not
have to search for connecting flights with other competing operators.

Although the destinations of competitors also seem to be well connected, they are
more present in cities of levels 2 and 3 and the traffic to and from these cities tends to
be seasonal.

6. Robust maintenance contracts:

Indigo has a Power by the Hour contract with International Aero Engines (IAE)
(which supplies the engines) which entrusts the manufacturer with responsibility for
performance. Indigo has entered into such agreements with Airbus, as well as with
their other suppliers of critical components. Such contracts lead to a reduced inventory
of spare parts, as indigo is also rarely faced with the need to withdraw its planes for
repairs.

7. Period of execution:

An airline earns money while it is in flight and is billed for the duration of its stay at
an airport. Indigo has one of the fastest turnaround times of 30 minutes. Having one
brand of aircraft again helps in this regard, as the time taken by the crew decreases. In
addition, policies such as customer involvement in aircraft cleaning show the level of
commitment to speed up their process and take off as soon as possible. In addition,
their average stage duration (flight time per flight) of 1.5 hours means that they do not

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 have to store and serve hot meals on most flights. This also contributes to their short
lead time.

IndiGo’s sale-and-leaseback model

India's largest airline, IndiGo, has abandoned plans to purchase planes outright and will continue
the sale and leaseback model with the goal of retaining cash in the near future.
This is part of the industry's volatile trading environment when airlines cannot raise ticket prices
when faced with the dual challenge of expensive fuel and fluctuating exchange rates.
This (model) makes more sense in the current business environment.

Last year, in modifying its strategy, IndiGo declared that it would own planes rather than use the
sale and leaseback model. This could help reform the cost structure, as the airline would
purchase and hold fuel-efficient new generation A320neos for longer periods.
However, the sale and leaseback model would help IndiGo increase its revenues at a time when a
price war could hurt its numbers.

According to donor market sources, with fuel prices remaining high, IndiGo would get better
fares for fuel-efficient A320neos. Neos use 15% less fuel than most other planes. Under current
conditions, demand is high, and each plane could make $ 13 million while last year it was $ 10
million per plane. Between July and September this year, IndiGo launched 12 new A320neos in
its fleet. The company has made a profit of $ 10 million on each aircraft. For Q4FY18, the
airline's profit of Rs 27 million was mainly boosted by sales.

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With 143 of the 169 aircrafts on lease, IndiGo was the most active user of the model. A lessor
buys a plane from an airline and leases it again. This removes the debt from the airline's
balance sheet and allows it to invest equity for other purposes.

The company may not agree to this, but such transactions help increase profits.

The additional income is important because IndiGo is convinced that it must be well
capitalized to maintain itself in an environment with prolonged low prices.

IndiGo is the cheapest operator. At no cost, they would allow competitors to take our traffic
from us. Raising prices would be counterproductive for what we are trying to do.

Indian transporters pay the highest jet fuel price in the world, thanks to local taxes which can
reach 30% of costs. Yet they offer prices so low that they can barely cover the costs. This is
mainly due to the various initiatives taken by the company to maintain its operational
efficiency and adhere to the sale and leaseback model.

Although India has experienced consecutive double-digit growth (passenger) in the past few
years, it still remains a difficult market for airlines.

Indigo SWOT Analysis

Strengths

• Low fares
• High service quality
• Operational efficiency
• Fuel efficient aircrafts
• Brand image
• Strong market share
• One class carrier

Weakness

• No established alliances

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 • Untapped domestic cargo
• Less differentiation
• Not globally established

Opportunities

• Growth in airline industry

• Untapped domestic cargo segment
• Ease in regulations and growth opportunities by government
• Growth in population and globalization
• Tapping tier 2 and tier 3 markets

Threats

• Fierce market competition

• Non-availability of sufficient terminal space, slots
• Insufficiency of aircraft parking, landing and departure discrepancies
• Variation in fuel prices
• Airport infrastructure constraints and their increased maintenance costs
• Unprecedented situations and epidemics such as COVID-19

The SWOT analysis of IndiGo is covered with respect to the recent happenings across the
world, for example an epidemic such as COVID-19. A strength which has worked in favour,
is its fleet strategy, wherein the average fleet age is four years. Hence, it has been able to
maintain its low costs consistently, thereby passing on the cost savings to its customer by way
of low- fares.

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Emerging Trends in Aviation Industry

1. Transition to Airport Ownership:

The airports today have witnessed a shift in their management and ownership structure from
public to public-private partnership, and finally to a fully privately owned and managed airport.
This eventually creates opportunities for larger investments in airport development.

2. Airport Cities:

Airports have transformed into social hubs where passengers can rest, meet and experience
various airport offerings. This has helped the airport industry to introduce new platforms in order
to integrate with other sectors and provide a seamless and connected array of services.

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 3. Location-based Services:

When it comes to non-aeronautical revenues for the airports, targeted marketing, including
information on discounts and store location in the airport. Passenger tracking and integrated
personalized technology like Wi-Fi would provide a sense of safety and security.

4. Digital Security:

Advanced concepts such as ‘Walk through security’ to reduce passenger wait time, and
automation of verification process can be achieved through biometrics.

5. Self-operation:

The evolution of passenger operations will lead passengers to perform all services from check-in
to boarding the flight on their own. This will help optimize resources, reduce operating costs, and
increase non-aeronautical revenue.

6. Traffic growth:

Driven by the rise of the middle class, passenger traffic doubles every 15 years. Forecasts have
confirmed that this trend will continue. This results in the need to modernize the airport
infrastructure.

The Asia-Pacific region has experienced a growing population of air travelers. As a result,
suppliers have targeted this region to gain market presence, thereby providing growth
opportunities.

7. Integration and standardization:

Providers understand the importance of integrated platforms. Alliances with other providers allow
them to provide end-to-end platforms that integrate different segments of the airport.

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Suppliers also use mergers or acquisitions to include new platforms in their portfolio and market
their services as airport integrators.

8. Digital transformation:

The level of digitization at airports is increasing rapidly and supports trends such as increasing
automation and targeted passenger services.
This will lead to a connected airport where the control center has visibility of all operations and
can better monitor and manage performance compared to Key Performance Indicators (KPIs).
The provider provides a range of analytical services that integrate with all airport operations and
is committed to airport operators finding ways to provide seamless connectivity throughout the
airport.

9. Green airports:

With high standards to limit noise and air pollution, airports will increasingly focus on producing
energy from renewable sources and improving energy management solutions.

10. Consolidation:

Faced with the expansion of the airport and the increasing competition between suppliers, suppliers
are consolidating their position in the industry by promoting their products in existing markets to
gain a significant presence in the market.
Suppliers build on this success by expanding into new market regions or by developing and
marketing new products in their existing regional presence.

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References

• https://www.goindigo.in/content/dam/goindigo/investor-relations/annual-report/2018-
19/Annual-Report-and-Notice-InterGlobe-Aviation-Limited-2018-19.pdf

• https://www.researchgate.net/publication/331749327_Operations_Management_Perspectives
_in_the_Air_Transport_Management/link/5c8afa9ca6fdcc3817541c56/download

• https://www.hindawi.com/journals/mpe/2013/581586/

• https://www.goindigo.in/information/investor-relations/operational-statistics.html

• https://www.business-standard.com/article/companies/indigo-will-stick-to-sale-and-leaseback-
model-for-its-fleet-induction-118102301227_1.html

• https://www.futuretravelexperience.com/2018/01/10-technology-trends-airlines-airports-
2018/

• https://www.smithsdetection.com/insight/aviation/top-10-trends-aviation/

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 Plagiarism Check Result

Checked 100%

Plagiarism 17%

Unique 83%

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