1. How did the concept of LCC emerge in India?

Which factors encouraged the

growth of LCCs?

The history of aviation industry dates back to 1930 when the Tata group launched the
Tata airlines. Though at that time the entry of private firms were restricted but after the
liberalization the entry of private owned airlines operators and LCC emerged in the
Indian market. By 1994 the government approved the entry of private players in the
market. LCC emerged as the main concentration on developing the economy was on
infrastructure and the development of the transportation and in particular the aviation
industry thus giving more liberal option to private players and expanding the same
industry with low cost fair and carriers as a ticket costing the same as first tier ticket of
railways thus encouraging people to travel by air reaching their destination in lesser
span of time. LCC even lead to more foreign direct investment inflows, higher corporate
travel, higher household incomes, sustained business growth and contributing to the
government even in many ways for developing of the national economy.

In 2003 the first LCC entered in India which was the Air Deccan. The entry of this first
LCC in India constituted a turning point in Indian aviation industry. It led to a shift from
traditional economy and business fares to special discounts, promotional fares, check
fares, web fares and corporate discounts. India witnessed a compounded annual growth
rate of 19.14% in the air passenger traffic and 9.91 % in cargo movements over the
period from 2003-2004 to 2007-2008. This complemented the success of the LCC
model referred to as the no frills airlines business model. This encouraged other
private airlines to emerge. The entry of LCC along with increased FDI inflows, tourist
inflows, higher corporate travel, higher household incomes, sustained business growth
and supporting government policies, all contributed to the growth of the Indian aviation
industry. Today, there are effectively seven major airlines operating 11 different brands.
Air India + Air India Express
Jet Airways + Jet Konnect + JetLite
Kingfisher Airlines + Kingfisher Red
IndiGo
SpiceJet
Go Air
Paramount

Out of which GoAir, IndiGo, SpiceJet, JetLite are LCC airlines. The most significant
recent strategic development in the Indian domestic market is that it is rapidly turning
low cost. An operating model that did not exist in the Indian market until six years ago,
could account for almost 70% of domestic capacity by the end of 2010, as predicted by
the Centre for Asia Pacific Aviation as early as 2005. The shift to low cost has been
accelerated recently by moves by Jet Airways and Kingfisher Airlines to reconfigure the
majority of their domestic aircraft to operate all-economy, no-frills service. Air India is
also planning to follow suit. As of Mar-2010, on the domestic front, the three large airline
groups Air India, Jet Airways and Kingfisher Airlines commanded a 59.7% market
share, while the independent LCCs controlled 39.0%.

2. What factors should SpiceJet consider before strategizing its operations in India?
IFE Martix Spice Jet

Key Internal Weighted

Strengths Factors Weight Rating Score

entered with
Rs 99 fares
for first 99
days 0.2 4 0.8

Fleet of 6
Boeing 737-
800 with 189
seats 0.1 4 0.4
available in
tier 2 and
tier 3 cities 0.1 4 0.4
Weaknesses
small fleet
structure 0.2 3 0.6
concentratin
g in north-
west-south
sectors 0.2 3 0.6
small
loading
capacity 0.1 4 0.4
poor
infrastructur
e 0.1 4 0.4
1 3.6
EFE Matrix Spice jet

Opportunitie Key Internal Weighted

s Factors Weight Rating Score

future fleet
expansion
will increase
the current
market share 0.2 4 0.8
attractive
fares and
Quality
service will
generate
more
customer 0.2 4 0.8
high attrition
Weaknesses rate 0.2 3 0.6

threat of
new entrants 0.2 4 0.8
high cost
aviation
turbine fuel 0.1 3 0.3
employee
retention is
difficult 0.1 4 0.4
1 3.7

3. What strategies could be adopted by SpiceJet to overcome the factors that inhibit the
success of the LCC business model?

Training more pilots and air traffic controllers will help in maintaining the retention rate of the
employees.
The retirement age can be raised to 65 as it is a private organization, which will give more
experienced professional work.
Proper knowledge management systems can be used to share knowledge, which will help the
tacit knowledge remain in the organization.
Employee engagement programs can be offered.

By getting tie-ups the state owned retailers of aviation turbine fuel will help in getting the same
ATF at a lower cost.
Spicejet can take measures to acquire the existing LCC players with minimum market share.
That would help in expanding the current market share and help in building the brand name.

Tie-ups with more MNCs and government organizations will lead to the business class use the
service more than the normal crowd.
Creating a good infrastructure in tier 1 cities will help.
Frequencies in tier 2 and tier 3 cities should be increased with more marketing strategies.
This will get more passengers in the tier 2 and tier 3 cities.
Offers to promote the airlines and campaigns can be conducted for making the tier 2 and tier 3
cities realize the convenience in the airways.

The fuel costs should be controlled by proper planning as it is one of the major threats
Spicejets may increase flights to countries which are aviation hubs & where the ATF prices are
considerably low for eg. Dubai & Singapore where it is 60-70 % less compared to India. This
would reduce the burden of ATF prices to some extent.
Spice Jet should focus on the International flights and follow the strategies followed by worlds
first international LCC Southwest air lines
Managing Employee Remuneration Costs Motivating Employees: Spice jet should give
considerable attention towards the employee costs, & also make proper HR strategies to retain
the employees. The employee loyalty needs to be improved by providing them proper appraisal
& pushing them up the ladder in their career.
Reduce the flights to region where the infrastructure is very poor (if it is impacting the business
tremendously), and increase the number of flights on the routes where the passengers are more.
The competition in LCC airline is tough and is increasing so there has to be differentiation, to
have a competitive edge over the other competitors.
The disposable income of population has increased so Spice Jet should target at these segment
of population by providing them discounted fares, and keep the pricing strategy as dynamic as
possible.
Spice Jets may look up for entering into alliances with 49% FDI in order to expand their business
domestic as well as internationally.