Faculty Name: Mr. Anchal Gupta

Subject: Strategic Management

Title of the Case: SpiceJet as a Leader and Looser

Topic Covered: Cost leadership Strategy, Turnaround Strategy, SWOT Analysis

Overview of illustration:

SpiceJet is an Indian low-cost airline and certainly it will guide all MBA students that how a small company started their business and became fourth largest airline by domestic passenger share.

Here students will learn that how a company which is losing market position but still is holding price leadership tag (Cost leadership Strategy) and just within short span of time same company is thinking for coming back strategy. Within the case we will discuss the SWOT analysis of SpiceJet, proper understanding of the case will help budding entrepreneurs.

SpiceJet has implemented many such strategies in order to stand proactively in innovative and competitive external environment.

The topics touched are:

1. Cost leadership Strategy 2. Turnaround Strategy 3. SWOT Analysis

About SpiceJet Airline

It is the country's fourth largest airline by domestic passenger share. The airline operates more than 230 daily flights to 42 destinations, including 34 Indian and 8 international cities using a fleet of 737 Next Generation and Bombardier Dash 8 Q400 aircraft. The airline began services in May 2005 and has its corporate office in Gurgaon, . In 2004, Ajay Singh raised funds and restarted operations as SpiceJet following the low-cost model. SpiceJet leased 3 -800 aircraft. On 7 March 2005, the Airports Authority of approved three overnight parking slots to SpiceJet, with two in Delhi and one in Mumbai. SpiceJet opened bookings on 18 May 2005. The first flight was flagged off by then Union Minister of Civil Aviation, Praful Patel. The first Boeing 737-800 aircraft left Indira Gandhi International Airport, New Delhi for Chhatrapati Shivaji International Airport, Mumbai on 24 May 2005. By 2008, it was India's second-largest low-cost carrier in terms of market share.

Awards and Achievements

 India’s Best Low Cost Airline by Outlook Traveller (2008, 2010, 2011 & 2012)  India’s International Low Cost Carrier of the Year- 2012 by Travel Agents Association of India. (TAAI)  India’s Most Outstanding Airline LCC-Domestic Award, by Travel and Hospitality. (2012)  Best LCC Website at 'World Low Cost Airlines Asia Pacific Conference', Singapore. (2010, 2011 & 2012)  India's Top 100 CIO Award for customer satisfaction and business growth category. (2007, 2008, 2009, 2011 & 2012)  India’s best low-fare airline in a survey conducted by Mars on behalf of Hindustan Times (Dec 2009)  World Travel Market Award for multi-channel approach in distribution. (2009)  National Award (ICWAI) for excellence in Cost Management. (2009)

What took SpiceJet close to the exit?

In 2012, SpiceJet suffered from a loss of over 390 million (US$6.1 million) owing to increase in global crude prices. On 9 January 2012, the Directorate General of Civil Aviation, reported that several airlines in India, including SpiceJet, have not maintained crucial data for the flight operations quality assurance or the FOQA. The Bombay stock exchange announced that ever since June 2011, SpiceJet had been suffering losses. In 2012, Despite the losses, Kalanithi Maran increased his stake in SpiceJet by investing 1 billion (US$16 million) in the airline. The airline returned to making profits at the end of the year. In 2013, SpiceJet launched its first interline pact with Tiger air on 16 December 2013.

SpiceJet

Parent Company Spice Jet

Category Indian domestic sector

Sector Airlines

Tagline/ Slogan Flying for everyone; Get More When You Fly

USP Lowest Price

STP

Segment Cost Conscious Passengers

Target Group Lower Middle Class / Middle Class

Positioning Low Cost No Frills

SWOT Analysis

1. Strong backing by the Promoters 2. LCC segment is ever growing in the country

3. One of the largest low cost carriers in India

4. Has a reach to around 35 Indian destinations

Strength 5. Good presence in the market due to its branding and advertising

1. Low market share due to presence of significant competition

Weakness 2. Has limited destinations and no international presence

1. Middle Class taking to the skies

2. More opportunities to grow on popular routes and destinations

Opportunity 3. International tie-ups would boost brand image and reach

1. Strong competition in LCC segment 2. Rising Fuel Costs Threats 3. Changing govt policies

Competition

1.Indigo 2.Go Air Competitors 3.JetKonnect

Wrong Turns

In July 2014, SpiceJet announced up to 50 per cent discounts due to competition. In December 2014, SpiceJet cancelled many domestic flights across the country. Directorate General of Civil Aviation (DGCA) issued warning over non-payment of salaries and dues, while the airport operators moved to put the carrier on cash-and-carry mode, which means the airline can use the facilities of an airport only upon immediate payment. On December 17, all flights were grounded after oil companies refused to refuel its planes. Flights resumed the next day. In January 2015, the board of directors of SpiceJet transferred control of the airline to Ajay Singh, the founder of SpiceJet who also used to run the airlines earlier.

Reasons behind SpiceJet's downfall

SpiceJet has resumed flight operations but it will be difficult for it to pull through in coming days due to lack of equity infusion.

One would never have thought that SpiceJet, India’s second largest airline with around 20 per cent market share would be on the verge of going bust so soon. The airline’s customer care helpline is flooded with calls from fliers who are now seeking a refund for seats booked in advance. Source-based media reports on Wednesday morning (December 17, 2014) suggested that SpiceJet has grounded almost all its flight due to oil marketing firms denying fuel to the cash-strapped carrier. Though, the airlines chief commercial officer Sanjiv Kapoor has assured to resume flight operations, the industry is unsure about the airline's capability to operate flights smoothly henceforth. It is not long ago, when in 2012, SpiceJet and it arch rival Indigo had gained maximum market share from erstwhile Kingfisher Airline's debacle. Today, destiny has taken its own course and the 9-year old carrier is desperately seeking funds to run daily operations without any hurdles. The politically-connected promoter of the airline, Kalanithi Maran has assured to immediately infuse Rs 200 crore (Rs 2 billion) into the ailing carrier. But is this amount sufficient for the airlines to fly all its aircraft in full swing?

The answer is certainly ‘no’ and here’s why

During the September quarter of financial year 2015, the airline paid around Rs 750 crore (Rs 7.5 billion) towards fuel purchase, Rs 1.10 billion (Rs 110 crore) as airport charges, employee cost came to around Rs 140 crore (Rs 1.4 billion). Overall expense was around Rs 1,829 billion (Rs 18.29 crore). Though, the airline trimmed its losses by around 45 per cent to Rs 3 billion; it still remained in the red year-on-year during the quarter gone by. But industry watchers and travel agents had seen SpiceJet’s downfall around a year back.

Frequent offers were not a good idea

“The airline frequently indulged in discount schemes and promotional fares which strengthened its market share and cash flows temporarily. For instance, SpiceJet managed to mop us over Rs 400 crore- 500 crore (Rs 4-5 billion) by announcing Diwali dhamaka offers, early bird sale, super sale in which it sold all-inclusive tickets at Rs 1,800.

High airport charges, steep fuel cost hurt most

It’s not only the case with SpiceJet, other airlines too are facing the heat of high cost environment prevalent in the aviation industry. ATF is the highest cost component to any airline and dominates over 75 per cent of the total expenditure to any airline.

Promotional Schemes

SpiceJet announced the launch of the ‘Cheaper Than Train Fares’ sale offer with one-way fares pegged at a starting price of just Rs 599 all-inclusive for domestic flights. SpiceJet says offer is also available for international flights (except Colombo, Kabul and Dubai-Ahmadabad-Dubai sectors), at fares starting Rs 3,499 all-in.

Bookings under this latest SpiceJet offer are open now and will close at midnight on February 13, 2015. The travel period covered in this sale is from July 1, 2015 to October 24, 2015.

Under this offer, tickets on routes like Hyderabad to Vijayawada, Delhi to , Guwahati to Kolkata, Ahmedabad to Mumbai, and Bangalore to Hyderabad are all priced at Rs. 599. International flights start as low as Rs 3,499 all-in for Delhi to Kathmandu, with discounted fares available on most other international routes too. A total of 400,000 seats are for sale under this offer, of which 100,000 are at the rock-bottom Rs 599 all-in fare.

1. Discuss the cost leadership strategies of SpiceJet? 2. “Spicejet is in long debt still continuing with cost leadership” Discuss?