Environmental scanning on the aviation industry in India
Indian aviation has been experiencing a boom over the past decade that has attracted tremendous attention and put much faith in investors to try the Indian aviation market again after years of market depression and stagnancy. Indian Aviation Sector has been growing, competitive, and thriving enough to attract foreign airlines. According to Economictime.com (2016), approximately 70 million Indians fly domestically in a year, about one-quarter of China's domestic air travel. The growth rate s higher by 23.3% making Indian Aviation one of the fastest-growing aviation markets. With that growth rate, India is anticipated to become the world's third-largest air transportation market after China by 1.3 billion and the U.S. by 1.1 billion passengers (Aviation voice, 2019).
Conducting a PESTLE analysis can help to understand how the Indian aviation industry managed to overcome years of economic depression and become one of the booming air travel markets.
Political
Being one of the world's largest Democracies, India has a tremendously active political influence on major businesses' daily operations, and the aviation industry is no exception. Similar to the U.S., Indian aviation and airline operations are highly regulated, which makes it a favorable environment for fliers. Historically, Indian airlines enjoyed a monopoly market for decades, set and followed self-made rules that particularly benefited the airline—neglecting safety regulations and prioritizing financials and profits mitigated safety and, consequently, a damaged reputation in the global aviation market. However, establishing robust laws and regulations by the government reduced adversities, boosted safety, adjusted airfares, increased the quality of services, and regained public trust in aviation. Close supervision and direct involvement of the government in daily aviation activities have raised hopes for current investors and new emergers.
Economic
The increase in middle-class family income has positively affected Indian aviation and has been one reason for booming air travel in India over the past decade. Bloomberg.com published an analysis by Davies and Kotoky (2023), indicating that major airplane manufacturers, like Boeing, are projecting India's demand for commercial aircraft to take a steep rise in coming years. The analysis reports that the Indian aviation market has rebounded from the COVID pandemic slump an
d reached its 98% capacity in 2022. Boeing has announced that India will need 2,240 new aircraft in the next twenty years. (Davies & Kotoky, 2023). Per Boeing's predictions, single-aisle jets, like the B737 Max, will dominate the Indian Aviation market, accounting for 1,930 or 90% of its deliveries.
With the demand in place, the Indian aviation market is witnessing an increasing number of investors placing orders with Boeing, airbus, and other airplane manufacturers to operate in the country in the years to come.
Social
Indian flyers have always been a cost-focused community. However, corporate travel has also risen in the past years, enabling some associates to travel without considering airfares. Indian airlines saw this as an opportunity and have introduced multiple products and services to attract corporate travelers and high-paying customers. These services include seat selection, free meals, no-penalty cancellations or date changes, and advanced boarding. Due to the increasing competition, air carriers make conscious decisions and carefully study and categorize their customers into regular and high-paying passenger groups. It is noteworthy that this method is not helpful for low-cost carriers, like Indigo or SpiceJet, since they are bound to offer affordable prices only.
Technological
Nowadays, booking systems are more complicated than ever before. The booking procedure has to consider all groups of customers, and travel classes, like the economy, premium economy, business class, fuel prices, the demand of particular routes, and many other factors. Technology is empowering and an enabler. The booking engines, using the most recent informational technologies(IT), like Artificial Intelligence (AI), can receive thousands of requests and inquiries, process them simultaneously, accurately incorporate airlines policies, and within microseconds, generate the best prices that benefit both air carriers and passengers.
The growth in the number of low-cost airlines in the past two decades emanated from evolving ticket pricing engines. Airfare pricing is a challenging task that requires extreme accuracy and consideration of all sensitive factors, like fluctuating fuel prices. IT and AI are highly utilized and depended upon in the modern commercial aviation industry.
Internet and easy access to airlines' websites also played a significant role in increasing air travel. In less developed countries, establishing a travel agency where airlines could provide services and sell tickets was not viable since it would burden tremendous costs. Thus, accessing flight tickets took work for those who lived in remote places. Today, individuals can purchase a ticket through their phone within a few minutes, regardless of where they live. Advancements in Technology handed the power to the consumers' hand by supplying transparency and convenience, and at the same time, benefit the airline by reducing costs and expanding their scale.
Legal Factors
The next element in the PESTLE analysis is "Legal," a factor that plays a significant role in a company's conquest due to its legal characteristics and regulatory structure. A careful evaluation and consideration of the legality of the operations and compliance with rules and regulations can prevent firms from dealing with legal trouble and having to spend enormous amounts of money on penalties. Ignorance of such an important factor can always be costly, especially for an airline like SpiceJet, which tries to implement turnaround strategies, overcome past financial loss and damaged reputation, re-brand itself, and compete with giant rivals in the booming Indian aviation market. The legal factor of the PESTLE analysis includes numerous aspects, namely, Intellectual Property (IP) rights, customer and employee rights, environmental standards, and sensitive data protection.
Environmental Factors
Environmental consciousness has been growing over the past few decades. Changing climatic conditions have attracted global attention to this matter and have made environmental analysis an essential and integral part of the PESTLE study (Henry, 2018). In recent years, governments and organizations have established laws and regulations to provide as much environmental protection as possible. Due to the international presence of SpiceJet, this airline is required to consider environmental protection rules and carefully implement them.
The competitive environment for SpiceJet Airlines
SWOT analysis is a valuable tool that can help organizations analyze and concentrate on their strengths and opportunities while addressing potential weaknesses and threats. Employing this analysis can also be a proper approach to analyzing SpiceJet's competitiveness in the Indian Aviation market and determining how the company can improve its market position.
Strengths
Multiple aspects are considered SpiceJet's strengths, giving the company a competitive advantage in the Indian Aviation market. Generally, SpiceJet's brand strength is its financial position, product uniqueness, and experienced workforce. The followings are more specific strengths of the airline.
Strong support by promoters
Low-cost Carrier (LCC) sector is thriving in India
SpiceJet is one of the first and largest LCCs in the country.
Conducting flights to 35 destinations across India
Continuous presence in the market
Launching an interactive website for booking flights and hotels
Weaknesses
The weakness aspect of SWOT analysis scrutinizes business to find out about areas that need to improve and by which the company's position can be further increased. Weaknesses are often defined as attributes a company lacks or, from another standpoint, are the competitors' strengths. Here are SpiceJet's weaknesses:
SpiceJet's scheduled routes are limited, and the number of destinations its fleet flies to is low compared to rivals.
SpiceJet's market share is also low due to significant competition.
Opportunities
Similar to weaknesses, opportunities are the areas of improvement that a company need to take advantage of to increase its business. Opportunities in the airline industry can refer to geographical expansion, launching apps and websites for better communication, or improving the quality of service to gain a higher market share. SpiceJet's opportunities in today's market can be:
Boosting operations and launching international flights
Increasing routs to more popular destinations
Increasing the frequency of the existing popular routes
Considering the middle-class family since it promises more flights and more profits.
Threats
Threats are more critical to any corporation since they can adversely impact its business if no corrective actions are taken. Organizational success requires continuously evaluating the market and proactively finding solutions for potential threats. SpiceJet's threats are considered to be:
Unstable and frequently changing Indian government policies.
Changes in international flight operation rules and regulations
Increasing worldwide competition among Low-Cost Carriers
And, of course, rising fuel costs and fluctuating prices
LLC industry challenges
Today, Low-Cost Carriers (LLCs) play a significant role in expanding commercial flight access worldwide. Despite the substantial increase in the number of LLCs in the past three decades, these carriers still contend with various challenges, for example, the new world after the pandemic. The expansion of LLCs itself is a challenge for the participants. BusinessWire (2022) states that "the global low-cost airlines market was valued at $155.02 billion in 2016 and is projected to reach $440.46 billion by 2030, growing at a CAGR of 10.4% from 2022 to 2030." Growth at such a high rate, considerable investment and operational costs, and low profitability lead to significant challenges in the LCC industry.
These factors have already contributed to SpiceJet's struggle in the Indian Aviation market. The long-time lead airline in Indian skies, SpiceJet, is now dealing with financial stress almost every fiscal year and will not be able to overcome this challenge unless there is a major fund injection (Joshi, 2022).
A decline in SpiceJet Performance
Over the past 16 quarters (four years), SpiceJet has recorded a US$620 million loss (Joshi, 2022). The airline has announced that it incurred a loss of Rs 458 crore in the Q4 of FY22 and Rs 789 crore in the Q1 of FY23 due to the depreciating rupee, high fuel prices, and the third wave of Covid-19 (Patel, 2022). With this negative net worth, continuous loss, and the ability of the airline to continue as lead LCC at stake, SpiceJet may face further challenges in the coming years if the firm's executives do not take adequate corrective measures. SpiceJet's chairman, Ajay Singh, has stated that they are optimistic about the airline's future. His statement was based on the profitability of SpiceJet's cargo arm, SpiceXpress, which generated Rs 18 crore in FY 2022, indicating a 74% rise. SpiceJet anticipates its passenger operations will recover once the country has overcome COVID, which can also rebound India's economy.
Improvement recommendation
Airlines generate revenue from various sources, such as airfares and ancillaries like baggage charges, cargo, etc. Nonetheless, fuel is one of the leading expenses in the organization of a flight after labor costs. Indeed, it represents up to 35% of airlines' operating costs and is the most important factor determining airline operations' profitability. A long-term plan for SpiceJet can be investing in fuel alternatives, which will require feet replacement with newly introduced electric aircraft or bio-fuel engines.
As for a short-term plan, SpiceJet can build a fuel efficiency program and practice reducing fuel consumption through team efforts. This team can include the finance department, pilots, maintenance & engineers, and dispatchers. For instance, as the primary flight planning crew, dispatchers can determine fuel consumption rates by properly selecting routes and altitudes. Dispatchers' calculations can provide pilots with a set of valuable data by which they can increase in-flight fuel efficiency with adequate throttle and airspeed settings. The finance team can be involved in negotiating activities for purchasing lower price jet fuel. Furthermore, the engineering team can conduct routine inspections and maintenance on the aircraft to prevent part depreciation, causing an increase in fuel consumption.
References
Henry, Z. (2018). SpiceJet s Successful Turnaround Strategies PESTEL Analysis. Case48. https://www.case48.com/pestel-case/49710-SpiceJet-s-Successful-Turnaround-Strategies
Arora, M. (2018). PEST Analysis of the Indian Aviation Industry. Www.linkedin.com. https://www.linkedin.com/pulse/pest-analysis-indian-aviation-industry-mohit-kumar-arora/
The Worldwide Low-Cost Airlines Industry is Expected to Reach $440 Billion by 2030 - ResearchAndMarkets.com. (2022, November 3). Www.businesswire.com. https://www.businesswire.com/news/home/20221103005970/en/The-Worldwide-Low-Cost-Airlines-Industry-is-Expected-to-Reach-440-Billion-by-2030---ResearchAndMarkets.com
TOP 5 World’s Largest Aviation Markets. (2019, December 3). Aviation News - Aviation Voice. https://aviationvoice.com/top-5-worlds-largest-aviation-markets-2-201912031047/
PANDE, P., & Hayward, J. (2020, October 22). How Airline Ticket Pricing Works. Simple Flying. https://simpleflying.com/how-airline-ticket-pricing-works/
Patel, D. (2022, August 31). SpiceJet reports a combined loss of Rs 1,247 crore in Q4FY22 and Q1FY23. Www.business-Standard.com. https://www.business-standard.com/article/companies/spicejet-reports-combined-loss-of-rs-1-247-crore-in-q4fy22-and-q1fy23-122083100958_1.html
Joshi, A. (2022, December 16). Are SpiceJet and Go FIRST weak links in India’s expanding aviation market? Moneycontrol. https://www.moneycontrol.com/news/business/are-spicejet-and-go-first-weak-links-in-indias-expanding-aviation-market-9717621.html
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