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Spicejet

In: Business and Management

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

Aviation industry in India was born in the year 1930.Tata group one of the prominent industry in India launched Tata airlines (India’s first airline services) After the emergence of the airline industry in India, after two decades more eight private players started their business but their operations were quite restricted.
These airlines proved to be a failure despite constant support from the government. As a result Air traffic enquiry committee was formed constituted by government of India recommended the nationalization of airlines. The air corporations Act 1953 was formulated and the two entities were nationalized namely Indian airlines corporation (IA) and Air India International (AI). The act restricted private players until 1986. In 1990’s private sector was allowed to reenter the market with the wave of the economic liberalization.
This was the time when LCC concept in India was brought into picture in the Indian market.
By March 1994 the government had approved six private carriers to commence the domestic services. But despite two carriers all others closed and filed insolvency. This duopoly continued till 2003, this duopoly was challenged by air Deccan in 2003 with its concept of LCC which made this industry emerge in India which proved to be a turning point in this industry.
Air Deccan with its entry brought into picture special discounts, promotional fares, check fares, web fares and corporate discounts or plans.

The reasons for the growth of aviation industry were as follows :- • Need to Strengthening its infrastructure and succeed in its growth prospects.

• With the transformation from an over regulated and under managed sector to a more liberal open business, the aviation industry attracted enormous investments post 2004 facilitating LCC further.

• India witnessed a compounded annual growth rate of 19.14% in the air passenger traffic and 9.91% in cargo movements from 2003-04 to 2007-08. This in turn complemented the LCC model and further encouraged other private players to go that route.

Q.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?

Competitive profile matrix is an essential strategic management tool to compare the firm with the major players of the industry. Competitive profile matrix show the clear picture to the firm about their strong points and weak points relative to their competitors. The CPM score is measured on basis of critical success factors, each factor is measured in same scale mean the weight remain same for every firm only rating varies. The best things about CPM that it include the firm and also facilitate to add other copetitors make easier the comparative analysis.

CPM matrix for Spicejet

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.

[pic]EFE MATRIX

External Factor Evaluation (EFE) matrix method is a strategic-management tool often used for assessment of current business conditions. The EFE matrix is a good tool to visualize and prioritize the opportunities and threats that a business is facing.The EFE matrix is very similar to the IFE matrix. The major difference between the EFE matrix and the IFE matrix is the type of factors that are included in the model. While the IFE matrix deals with internal factors, the EFE matrix is concerned solely with external factors.

External factors assessed in the EFE matrix are the ones that are subjected to the will of social, economic, political, legal, and other external forces.

Developing an EFE matrix is an intuitive process which works conceptually very much the same way like creating the IFE matrix. The EFE matrix process uses the same five steps as the IFE matrix.

List factors: The first step is to gather a list of external factors. Divide factors into two groups: opportunities and threats.

Assign weights: Assign a weight to each factor. The value of each weight should be between 0 and 1 (or alternatively between 10 and 100 if you use the 10 to 100 scale). Zero means the factor is not important. One or hundred means that the factor is the most influential and critical one. The total value of all weights together should equal 1 or 100.

Rate factors: Assign a rating to each factor. Rating should be between 1 and 4. Rating indicates how effective the firm’s current strategies respond to the factor. 1 = the response is poor. 2 = the response is below average. 3 = above average. 4 = superior. Weights are industry-specific. Ratings are company-specific.

Multiply weights by ratings: Multiply each factor weight with its rating. This will calculate the weighted score for each factor.

Total all weighted scores: Add all weighted scores for each factor. This will calculate the total weighted score for the company.

|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 |0.5 |2 |1 |
|cost carriers | | | |
|Total |0.6 | |1.4 |

IFE matrix

Internal Factor Evaluation (IFE) matrix is a strategic management tool for auditing or evaluating major strengths and weaknesses in functional areas of a business.

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IFE matrix also provides a basis for identifying and evaluating relationships among those areas. The Internal Factor Evaluation matrix or short IFE matrix is used in strategy formulation.

The IFE Matrix together with the EFE matrix is a strategy-formulation tool that can be utilized to evaluate how a company is performing in regards to identified internal strengths and weaknesses of a company. The IFE matrix method conceptually relates to the Balanced Scorecard method in some aspects.

The IFE matrix can be created using the following five steps:

Key internal factors...

Conduct internal audit and identify both strengths and weaknesses in all your business areas. It is suggested you identify 10 to 20 internal factors, but the more you can provide for the IFE matrix, the better. The number of factors has no effect on the range of total weighted scores (discussed below) because the weights always sum to 1.0, but it helps to diminish estimate errors resulting from subjective ratings. First, list strengths and then weaknesses. It is wise to be as specific and objective as possible. You can for example use percentages, ratios, and comparative numbers.

Weights...

Having identified strengths and weaknesses, the core of the IFE matrix, assign a weight that ranges from 0.00 to 1.00 to each factor. The weight assigned to a given factor indicates the relative importance of the factor. Zero means not important. One indicates very important. If you work with more than 10 factors in your IFE matrix, it can be easier to assign weights using the 0 to 100 scale instead of 0.00 to 1.00. Regardless of whether a key factor is an internal strength or weakness, factors with the greatest importance in your organizational performance should be assigned the highest weights. After you assign weight to individual factors, make sure the sum of all weights equals 1.00 (or 100 if using the 0 to 100 scale weights).

The weight assigned to a given factor indicates the relative importance of the factor to being successful in the firm's industry. Weights are industry based.

Rating...

Assign a 1 to X rating to each factor. Your rating scale can be per your preference. Practitioners usually use rating on the scale from 1 to 4. Rating captures whether the factor represents a major weakness (rating = 1), a minor weakness (rating = 2), a minor strength (rating = 3), or a major strength (rating = 4). If you use the rating scale 1 to 4, then strengths must receive a 4 or 3 rating and weaknesses must receive a 1 or 2 rating.

Note, the weights determined in the previous step are industry based. Ratings are company based.

Multiply...

Now we can get to the IFE matrix math. Multiply each factor's weight by its rating. This will give you a weighted score for each factor.

Sum...

The last step in constructing the IFE matrix is to sum the weighted scores for each factor. This provides the total weighted score for your business.

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 |

Q 3. What strategies could be adopted by Spice Jet to overcome the factors that inhibit the success of the LCC business model? You can focus on

The mail challenges they face are as follows :-

Employee shortage

Poor infrastructure

High cost of aviation fuel

All the above listed are the factors which are affecting the whole aviation industry and not the spicejet as an individual company.

Following are the ways or strategies that should be adopted by spicejet so as the cover up or to hedge them.

a) Differentiating the offer:

1) Differntiation should be based on the core compentency of Spicejet and should differntiate in such a way that they should lure customer from the other mode of trasnport rather than competitor.

2) Offer and discounts should be introduced during some festivals which can be sucessful in turning customers towards them from the other mode of transport as railways and volvo bus transport (middle class) this strategy mainly involves the urgency part of reaching the destination. Which will help them cover their cost.

3) Should have corporate customer loyalty programme in place. (suppose co A employee travels for 10 times to a particular destination in the same year next travel would be 10 % cheaper)

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) Also the rental is very high since they go for the purchase of aircraft through lease.

4) As ATF are increasing day by day they really need to have a strategy in place to ring dow its cost one way of doing the same is to hedge against the dollar price and to invest in the derivatives instruments with underlying asset as ATF which will bring into account the future price rise and it is a hedge against price rise.

5) Flying a single type of aircraft to cut maintenance costs.

6) Should exorbiantly for the excess baggage. And bagage limit can be differntiated according to the destination and the ticket price.

7) Also airport charges are low comparatively in Tier-ii cities so they can cover that as their landing/parking space

8) Increase operations in 2 tier cities and some international destinations.

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) Spicejet should introduce performance based appraisal and promotion mechanism into place.

4) Employees should be offered ESOP plan on certain criteria.

5) Special discounts for the employee and their family for the travel across India.

d) Strategic Alliance:

1) Strategic alliance is one of the method to reduce the exsisting competition.

2) Spice jet should try and take advantage of the exsisting sitituation and should have a strategic alliance with Kingfisher and try to expand its business.

3) Kingfisher symbolises the luxury in travelling and on other hand Spicejet is LCC , this strategy will help Spicejet to diversify its business and offest its losess.

4) Spice jet can try to get membership of Star Alliance, one of the biggest strategic alliance groups.

5) This will help them to spread their wings across different continents and they can develop the ability to benchmark against the high industry standards

6) This will add to quality, which in turn could generate revenue and reduce the costs.

7) Aviation industry outside India has some very big players and they are into profits

Managing Employee Remuneration

In order for Spice Jet to remain competitive, it should aggressively pursue talent to increase productivity and profitability, leveraging human capital to maintain a competitive advantage.
To meet this challenge, companies, must craft a clear and compelling strategy for implementing a well thought-out total reward/compensation plan to attract, retain and key talent. This total reward strategy should integrate key components including: 1. Total compensation 2. Benefits 3. Training, career and personal growth opportunities (World at Work Model)
These core components are critical for an organization like Spice Jet to survive.

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Economic

...------------------------------------------------- Top of Form Bottom of Form BUSINESS & ECONOMYNEWSPAPER * Home * Business * Businesswoman * Diamond Business * Global * Tata Consultancy Services * Trade * Export * Import * Companies * Airlines * Air India * Jet Airways * JetBlue Airways * Kingfisher Airlines * SpiceJet * Courier * DHL * FedEx * International Air Couriers * Naparex * UPS * Oil * Bp * Indian Oil Corporation * Lucas Oil * Marathon Oil * ONGC * OPEC * Opet * Rosneft * Shell * Total * Pharmaceutical Companies * Abbott Laboratories * Johnson & Johnson * Merck & Co. * Pfizer * Textile * Economic * Banking * Axis Bank * Bank of America * Bank of New York Mellon * Home Loan * HSBC * ICICI Bank * IMF * Punjab National Bank * Reserve Bank of India * State Bank of India * Vijaya Bank * World Bank * Gold Price * USA Economy News * World Trade Organization * Finance * Currency * Australian Dollar * Dinar * Euro * New Zealand Dollar ...

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