Indigo Strategy

...

1.5E+12

1E+12

5E+11

0

-14000 -12000 -10000 -8000 -6000 -4000 -2000 0

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Most Relevant Factors[pic 15]

[pic 16]

INDUSTRY

[pic 17]

- Exchange Rate, Crude Oil Price

- Correl: Oil : 0.88 Exchange Rate: 023

- 30 % of the total expense

- Recent drop in oil rpice led to the profitability in the industry for the first time in years

Oil Price

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GDP and Disposable

Income

- GDP, air traffic, Savings, Personal Consumer Expenditure

- Correl: GDP: 0.37 Saving: 0.32 Air Traffic: 0.88

- Working population especially professionals and the leisure activities directly feeds into the aviation industry

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- International Tourism, Domestic Tourism, Religious Trousim (Budhhism and Hisduism)

- Correl: Domestic: 0.244 Leisure: 0.198

- Growth Domestic : 16% International : 10%

Tourism

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Demographic

- Middle income group, urban population, air traffic, working age population

- Correl: Savings: 0.32 Wrk pop. 0.42

- LCC is enabling aircraft industry affordable for newer segments which is again propelling the potential market size

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- Lending Interest Rates

- Correl: 0.422

- As the industry is expanding and increasing its fleet size, interest rate plays a pivotal role in further investment

Interest Rates

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INDUSTRY METRICS[pic 18]

[pic 19]

INDUSTRY

- Available Seat Km (ASK) measures the total number of available seat kilometres (in million) per airline, by taking the sum of the products of number of passenger seats available for sale on each flight stage and the stage distance

[pic 20]

Industry has showed a healthy growth of 60%, a clear indicator that the industry is growing, majorly fuelled by the growth of LCC with IndiGo showing growth of 313% and GoAir showing 163% growth.

- Revenue Passenger Kilometer (RPK) measure of the volume of passengers carried by an airline estimated as sum of the products obtained by multiplying the number of revenue passengers carried on each flight stage by the stage distance (in million kilometers)

- Similar to ASK industry has showed a healthy growth of 84.5%, led the LCCs IndiGo showing growth of 335% and GoAir showing 183% growth.

[pic 21]

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Passenger Load Factor- Defined as the ratio of RPK and ASK[pic 22]

[pic 23]

INDUSTRY

[pic 24]

Hasn’t shown much increase over the past few years, but there has been a steady increase observed for SpiceJet and it forms one of the USPs for SpiceJet. The growth observed for Indigo in this is actually lower than industry average.

Kilometers Flown (in mns)- All players have increased their kilometers flown, with industry registering a 50% increase.

[pic 25]

- IndiGo flies more than a third of the total kms flown by the industry showing a phenomenal growth of 313%.

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Price sensitivity of Customers

[pic 26]

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INDUSTRY

[pic 27]

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Porter’s 5 forces analysis[pic 28]

Bargaining Power of Suppliers- High

1. FUEL

- Number of Suppliers: -

- Indian Oil, HPCL and BPCL- 95%

- The ATF price is fixed on a mutually agreed common formula between them.

- Cost of Fuel: -

AIRLINES

FUEL EXPENSE

(AS % OF TOTAL EXPENSES)

Jet Airways (2015-16)

26.46

Air India (2013-14)

48.36

Spice Jet (2015-16)