Spice Jet Case Study

1. How did the concept of LCC emerge in India? Which factors encouraged the growth of LCCs? Ans 1.:

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 may ways for developing of the national economy.

2. What factors should SpiceJet consider before strategizing its operations in India. Use tools such as CPM (Competitive Profile Matrix), EFE Matrix (External Factor Evaluation), & IFE (Internal Factor Evaluation) which serves to identify various factors and forces that are critical in formulating appropriate strategies needed to accomplish the organization’s objectives. You can learn this tools from referred books or from online?

ANS2:

Spiceject works on a low cost model and it has to be very careful in matter of operating costs. This model here is to stay for a long term period since it can directly compete with other means of transport. There are certain tools to be discussed below which will give us clear picture of formulation of strategies which can be implemented by Spicejet?

Comprehensive strategy formulation framework is a tool of strategizing with 3 different stages Stage 1:
The Input Stage
Stage 2:
The Matching Stage
Stage 3:
The Decision Stage

a) Internal Factor Evaluation
Matrix (IFE)

b) External Factor Evaluation
Matrix (EFE)

c) Competitive Profile Matrix
(CPM)

All the 3 tools mentioned forms part of the Input stage which is to be discussed: Indigo JetKonnect GoAir This matrix helps to give ratings from customer and industry point of view regarding certain critical success factors important for the company in the long run based on certain rating EFE MATRIX

KEY EXTERNAL FACTORS| WEIGHTS(0.1-0.5)(Low to high)| RATING(1-5)(High to low)| WEIGHTED SCORE| External Opportunities| | | |
M&A, Stake sale| 0.1| 4| 0.4|
External Threats| | | |
Competition from other low cost carriers| 0.5| 2| 1|
Total| 0.6| | 1.4|

EFE Matrix discuss the external opportunities for the company to grab and the potential threat which it needs to cope with based on certain rating scale IFE MATRIX

Key internal factors| Weights(0.1-0.5)(Low to high)| RATING(1-5)(High to low)| WEIGHTED SCORE| Internal Strengths| | | |
High load factor| 0.4| 1| 0.4|
On time service| 0.5| 2| 1|
Internal weakness| | | |
High operating cost| 0.5| 4| 2|
Low service quality| 0.1| 3| 0.3|
Total| 0.15| | 0.7|

IFE Matrix discuss the internal strengths for the company to build upon and internal weakness to work upon based on certain rating scale

3. What strategies could be adopted by SpiceJet to overcome the factors that inhibit the success of the LCC business model? You can focus on * Differentiating the Offer
* Tackling Operating Costs
* Entering into Strategic Alliances
* Managing Employee Remuneration Costs
* Motivating Employees

ANS:3

) 1)To begin with LCC model initially began on a successful note and promised to come out unscathed but it faced its own set of problems and challenge is huge ahead with main difficulty being remunerations to staffs and high cost of Aviation Turbine Fuel. 2) Keeping long term view in mind LCC has huge potential to replicate model of South-west airlines but they ought to have certain strategies in place

a) Differentiating the offer:

1) Spice Jet can latch on to the differentiating model w.r.t competitors 2) They can offer time to time discount services instead of giving discounts regularly to manage their costs. 3) Major differentiation is bound to be in terms of pricing since its low cost airline additional service model will not be successful since service has its additional costs and low cost model along with focus on service cannot go hand in hand since we have seen airlines struggling in the past who adopted both the models. 4) So differentiation is a big but important hurdle for Spice Jet to overcome competition from Indigo and Jet Lite.

b) Tackling operating costs and managing remuneration of employees:

1) Operating costs are one of the important factor in aviation industry many airlines have failed because of not being able to manage its operating costs. 2) Kingfisher is the live example in front of the industry it is struggling because of being unable to control their operating costs 3) High prices of ATF are the cost which the airline cannot avoid so Spicejet can control other costs like reducing remuneration of airline staff. Spice jet gives the highest remuneration in the industry and in these tough times they can reduce the same.

4) Also the rental is very high since they go for the purchase of aircraft through lease. 5) Since their ticket price is just low comparatively they can increase their price. 6) Also airport charges are low comparatively in Tier-ii cities so they can cover that as their landing/parking space

c) Motivating employees:

1) In these tough times striking good relationship with employees is very essential 2) This industry has a comparatively high attrition rate 3) Salary has to be high but according to industry trend and requirement then it can help airline to balance cost d) Strategic Alliance:

1) Aviation industry outside India has some very big players and they are into profits 2) Indian aviation sector can take cue from them and try to change their dwindling fluctuations 3) Spice jet can try to get membership of Star Alliance, one of the biggest strategic alliance groups. 4) This will help them to spread their wings across different continents and they can develop the ability to benchmark against the high industry standards 5) This could add to quality, which in turn could generate revenue and reduce the costs.