SpiceJet – Surviving and succeeding in a bleeding market

When times are going good, the economy is in boom, stock market is on an uptick and the respective sectors are growing, all companies that succeed get talked about and written about in books. But when times are good, it is anyways quite simple to succeed. It’s only when the going gets tough that real strategy is able to emerge. A classic example of real strategy emerging in difficult times is Spice Jet.
In an era when Air India is bleeding probably without repair and Kingfisher and Jet Airways owe thousands of crores of money to fuel companies, Spice Jet is one of the very few airline companies that has managed to make a profit in 2009-10.
Airline
Net profit (2009-10) in crore rupees
Jet Airways
-420
Kingfisher Airlines
-1647
Spicejet Ltd.
61
After Sun TV’s Maran acquired a 37.7 per cent stake with a 20 per cent open offer in Spicejet, its CEO Sanjay Agarwal quit the company and has since joined Kingfisher Airlines. But we ascribe the success of Spicejet in 2009-10 completely to the decisions taken by Sanjay Agarwal who had taken charge in Dec 2008. Hence in this post, we will talk about the changes that he brought about while he was at Spicejet.
Increase in aircraft utilisation: There is a metric “aircraft utilisation” that airlines use to indicate efficiency. This means the number of hours that an aircraft flies in one day, and obviously has a direct impact on the revenues. In 2008-09, SpiceJet had an aircraft utilisation of 10.5 hours/day, and it managed to increase this to 12.5 hours in 2009, when the average for Kingfisher was 9.5 hours, for Jet it was 10.5 hours and for Air India it was 8.5 hours. It was able to manage this change by small improvements in ground handling, reducing refuelling times and then strategically rescheduling flight times. This helped reduce its cost per available seat km much below Kingfisher and Jet.
Cost Avoidance: Apart from cost-cutting, SpiceJet followed a strategy of cost avoidance. Fuel costs constitute 40% of costs for airlines in India. SpiceJet was able to reduce that cost due to two reasons. Firstly, unlike other airlines which owed huge dues to fuel companies, SpiceJet paid its fuel bills on schedule, which helped them negotiate a 15% discount in the fuelling contracts. Secondly, they made small tweaks to the flight operations by adjusting ascent and descent profiles of the planes. They ensured that short-haul aircrafts did not ascent too high and long-haul aircrafts ascended to their right height quickly. This helped reduce the fuel expenditure by 14% in 2009-10.
Providing Good Quality: The biggest challenge that SpiceJet faced was to maintain a perception of good quality in spite of its low-cost personality. It needed to create this belief in its quality both to attract customers and to retain employees.  To create that perception, SpiceJet launched a new ad campaign that focused on a “value-led” proposition rather than a “promo-driven” proposition or “cheap rates” proposition. The brand message that was being communicated was “Get more when you fly SpiceJet”. In line with this brand image, the quality of in-flight meals was also improved and advertised about. Though food sales, which in fact increased by 200% in 2009-10, do not contribute much to the revenue, but they help attract passengers. Also, to create a plush and clean feeling while travelling, the inside aircraft maintenance staff was increased, frequent painting was done, carpets were changed, regular washing of the aircraft was carried out etc.
Much of the credit for all the innovative measures taken at SpiceJet goes to the top management who implemented the required changes and motivated the other employees to contribute to SpiceJet’s mission to succeed. In fact, with the exit of Sanjay Agarwal and his team of 10 people, it will be interesting to see how SpiceJet fares from now on with its new management.
SpiceJet was able to make cost-cuts where they were needed and where the impact would be the most, while still investing to maintain or build a reputation of a good-quality carrier. It managed to do this at a time when the airlines industry was in shackles, and all its competitors were bleeding badly. It came out of the crisis relatively unscathed because of the innovative strategies that it deployed. That is what real strategy is all about.
Reference: Business Standard
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Green consulting: The way to go

We at IIM Ahmedabad’s Consulting Club have started a new initiative on this blog where we will regularly publish articles contributed by corporates working in the area of consulting. We hope that these insights from the professional world will be interesting for our readers and will help contribute towards making this blog an active forum for students and professionals related to the world of consulting.

The first article in this series has been contributed by Gensol Consultants Pvt. Ltd. who have been working in the area of Green Energy Consulting for about three years. 

Talk about green jobs and the image of men operating wind-turbines, solar energy plants or environmental activists lobbying for water or forests conservation conjures up in the mind. Little does one wonder about people advising the corporates to lower their carbon emissions–called carbon footprint–through innovative strategies or helping the government devise policy initiatives aimed at mitigating climate change. But the landscape of green jobs has undergone a rapid transition to include advisory jobs that are aimed at transforming existing work practices with due regard to the mother nature.

The basic premise on which the consulting business operates is the expert advice on a certain subject, whose inherent complexity could impair the ability to achieve the objectives of the business in the absence of an expert guidance. In this vein, a consultancy that advises on the best possible strategies to low carbon emissions would require a deep acumen of the policy inputs specific to climate change and its mitigation. Given the kind of opportunities presented by the climate change mitigation and adaptation measures around the world, the role of a green consultant is a promising field to make a career in.

It is the passion to harness the huge potential of this business that Gensol Consultants Private Limited (GCPL) set itself on a path to become one of the big names in the green advisory business, to a point that when you say ‘green consulting’, Gensol’s name quickly makes waves in your mind. Notably, Gensol had made a humble beginning in the year 2007. And during this short span of three years, Gensol has already etched a strong presence in the global CDM market, by clawing more than 25% share of CDM advisory market in India, with more than 350 clients under its kitty.

While it is true that CDM advisory was the primary business for GCPL, the heightened sense of responsibility towards preserving environment the world-over has certainly presented opportunities to spread our wings even wider. To put this context, it would be notable that developing nations have fashioned a very mature response to the problem of climate change and they are time after time giving out policy responses to this important issue. For example, with a view to emerge as a low carbon economy, India had released its first National Action Plan on Climate Change (NAPCC), in June 2008, outlining existing and future policies and programs addressing climate mitigation and adaptation. Under this Plan, eight national missions have been the identified, namely the National Solar Mission, the National Mission for Enhanced Energy Efficiency, National Mission for Enhanced Energy Efficiency, National Mission on Sustainable Habitat, National Water Mission, National Mission for Sustaining the Himalayan Ecosystem, National Mission for a Green India, National Mission for Sustainable Agriculture and the National Mission on Strategic Knowledge for Climate Change. Importantly, the solar mission seeks to add 20,000 MW of solar-based generation capacity by 2022, the energy efficiency mission aims to yield savings of 10,000 MW by 2012, the sustainable habitat is intent upon promoting energy efficiency as a core component of urban planning and the water mission has set a goal of a 20% improvement in water use efficiency through pricing and other measures.

Meanwhile, goals under the green India plan include afforestation of 6 million hectares of degraded forest lands and expanding forest cover from 23% to 33% of India’s territory, the sustainable agriculture plan aims to support climate adaptation in agriculture, while the sustainable Himalayan Ecosystem scheme aims to conserve biodiversity, forest cover, and other ecological values in the Himalayan region, and the mission on strategic knowledge for climate change envisages a better understanding of climate science, impacts and its  challenges.

While a lot of green consulting activity has already been done while framing this policy, the path of implementation unveils a much more lofty scale of opportunities for us to grab. Each mission embodies a vast gamut of business potential, in light of the huge scale of activity the country has tounfold in order to achieve its  dual aim of inclusive growth and a better environmental standing. For example, the solar mission is a great platform to improve the business potential since solar power generation is still in a nascent stage and requires a lot of desk as well as field research to find a site that is suitable for the installation of the solar panels. Given the fact that solar power generation is a capital-intensive business, the role of a consultant cannot be left without attention. Then again, the Green India mission is another potential area where Gensol is eyeing a big game, given that forestry carbon projects have always been on the agenda of the international climate change summits. The role of forests as stocks of carbon has been an area of heated discussion in light of the fact that they are non-permanent sinks of carbon and, therefore, require suitable forestry models to maximize revenues–another potential area of green consulting. Similarly, other missions also present a bunch of business opportunities for Gensol as a green consultant.

Besides, there are numerous avenues where the consulting business could be expanded. A stellar example in the Indian context would be the renewable energy certificates (REC) mechanism, which a market-based instrument to promote renewable energy power. Under this scheme, the power generating companies would be required to generate a certain percentage of the total electricity consumption in their area–called renewable purchase obligation (RPO)– from renewable energy sources, like wind, solar, biomass, among others. The existing disparity in the renewable energy sources across the country would allow these companies to purchase these certificates from the energy exchanges in order to meet their RPO targets. It is estimated that the REC market is worth more than Rs. 14,000 crore, which further enhances the scope of our business. A similar budding opportunity is the energy saving certificates (ESC) scheme, under the national energy efficiency plan, under which, the units of energy saved could be tradable in a similar operational framework, whereas Green IT and Green logistics remain robust candidates on our business radar. Not only this, Gensol has carved out its global expansion plans, with its maiden overseas venture being the U.K’s Carbon Reduction Commitment (CRC) program, which is a U.K-specific version of the global carbon trading market. Gensol hopes to grab a fair share of this market, by helping the corporates cut costs, make money and improve their environmental standing.

In this background, it might be apropos to say that Gensol is well on the path of its vision to become a 360o carbon solutions provider, with minute focus on ‘green and the shades of green’.

Credit: Mr. Anmol Singh Jaggi, Director, Gensol Consultants
             Ms. Tisha Dwivedi, Gensol Consultants

Philanthropy in India

Azim Premji’s recent donation of $2 billion has put him in the league of socially responsible and proactive billionaires working towards the betterment of the world. This distinguished league boasts of names like Bill and Melinda Gates, Warren Buffett, Carl Icahn and Mark Zuckerberg. Melinda and Bill started The Gates Foundation, one of the biggest and most transparent organisations working for improving health and eradicating poverty. This Foundation has received donations from numerous billionaires like Warren Buffett (who has pledged 99% of his wealth to philanthropic activities). In order to carry the message of philanthropy to all US billionaires, ‘The Giving Pledge’ was started by the Gates and Warren Buffett. This is a pledge to invite the wealthiest individuals and families to commit a majority of their wealth to philanthropy. One of the latest members to take this pledge was Zuckerberg, the founder of Facebook. It is said that he took this pledge and donated $100 million just before the release of the movie “The Social Network” which paints him in a negative light.

Premji’s generous donation goes to Azim Premji Trust, which works for promotion of primary education in India. This activity is being misconstrued as CSR(Corporate Social Responsibility) by the media although it is his personal wealth that he’s donated as an individual, in no way related to his companies. Historically, the Tatas and Birlas have been socially responsible conglomerates, encouraging education in India without calling their activities with fancy names like CSR. With the advent of MNCs in India, CSR is viewed with scepticism since it is seen by MNCs as just another policy to be implemented. Sometimes the CSR activities carried out seem like giving a royal feast to poor people for a day and then forgetting that they need food for subsistence all through the year. It is artificial and just another foolish way of spending shareholders’ wealth.
As a country, India leads other developing nations in philanthropy with charity contribution at 0.6% of GDP. However, it lags far behind the developed nations. Looking at the complete package that gets disbursed in India, only 10% is donated by Indian individuals and companies while 75% comes from abroad. The government and individuals donate largely for disaster relief and not on a regular basis as is a trend in USA and Europe. Another interesting observation is that in India, the higher class donates lesser than the middle class and the same holds true for the middle versus lower class(in terms of percentage of household income). As income and education levels rise, why is it that donations do not? On a more fundamental level, why is it that Indians do not loosen their purse strings for the poor and needy?
One of the reasons is the recent accumulation of wealth by individuals. Normally, it takes about 50 to 100 years for the donation market to mature after an economy matures. At a micro level, in a developing economy every individual considers his wealth as a statement of his social standing. Charitable donations do not command the same social status as money in one’s bank account, hence parting with it is not easy. Another popular reason is the mistrust with which NGOs and philanthropic organisations are viewed. Given the high levels of corruption in India, along with the non-transparency of such organisations, Indians would rather keep the money for their future generations than give it away to unknown people who might misappropriate it. Traditionally, Indian society is pro-saving and wealth is kept in the family for generations. Hence, giving away money to an organisation which would benefit a village in some remote corner of India does not appeal to the public. Although they are generous people, personal donations tend to be even more personal – in the form of giving away food, clothes or money to poor servants and slum dwellers around their own area of living.
The good news is that India is waking up to the idea of philanthropy and many industrialists including Azim Premji, Sunil Mittal and Bajajs have set up their own foundations. In order to promote the culture of individual philanthropy India needs to introduce new tax laws (like inheritance tax in USA which is close to 50%). Bureaucracy and archaic laws which make non-profit organisations and donors run around for operations and tax savings respectively dissuade individuals from making charitable contributions. These should be reviewed by the government.

Social development as an investment is being promoted by a few institutions around the world. This approach attacks the problem that philanthropy is trying to solve in a novel way and may prove to be successful. Since India ranks high among foreign investors, inviting investments in the social sector is not difficult and is being carried out successfully by MFIs or MFI related companies like Legatum and Omidyar Network India Advisors. These investments are done in rural energy, health, farmer loans, education and other areas of empowerment such as property rights.

Strategy Digest Volume 1 (Dec)

Top newspapers gearing up to make readers pay for online content

Some of the world’s top newspapers including “The New York Times” and “The Times of London” have showcased a serious intent to charge readers for online content. In recent times, the US and UK newspaper industries have been continuously plagued by steeply declining advertisement revenues. The decision to charge for online content comes with its share of serious difficulties that include the possibility of a heavy decrease in online readership which might make advertising through this medium less attractive for marketers. The publishing houses are still sometime away from actual implementation but it is interesting to see the starkly different strategies that they plan to implement.
The Times of London – The Times of London plans to establish an opaque pay wall which will allow readers to access the content for a price of £1.00 for a day or £2.00 for a week. A similar strategy which seemed to work for the business counterpart, “The Financial Times”, in the earlier stages failed to deliver results for The Times which witnessed a grave downfall in readership by almost 90 percent during test runs.
The New York Times – NYT’s plan of going for a “metered” tariff is very different. It plans to charge readers after they have accessed a limited number of free articles on the website. FT has been using this model for the last few years and at present the digital revenue at FT represents about 20 percent of the total revenue.
The publishing houses strongly believe that paid subscriptions allow them to gather valued data which in turn helps fine tune advertising programmes for the target audience. This offers better value to the marketers and increases the efficiency of advertising revenue for the newspapers.

“The Great India Nautanki Company” in China

Kingdom of Dreams, which is India’s first of its kind live entertainment complex, is ready to be established in China. The Great India Nautanki Company (GINC) which controls the Kingdom of Dreams has entered into a JV with China’s leading stage equipment manufacturer Dafeng to setup 10 live entertainment destinations in China at an investment of roughly $100mn each. It is common to hear about Bollywood popularity in the USA and Europe, but GINC’s strategic move into China with its theatrical firepower presents an interesting strategy that has been adopted by the company. GINC is banking on China’s local tourism where more than 30 million people travel each year.
The idea behind Kingdom of Dreams is to deliver an assortment of complete Indian entertainment which would include Indian handicraft, architecture, exotic Indian cuisine and India’s most expensive theatrical extravaganza – “Zangoora”. Wireless interpretation machines and dubbed dialogues will pave the way for our Chini brothers to understand and enjoy Indian art. The move sounds fresh and aims at more than 24 percent ROI.

Dell enters the smart phone market in India

A month after unveiling the Dell Streak tablet, Dell has launched two Android based smart phones, XCD 35 and XCD 28 attractively priced at Rs. 16,990 and Rs. 10,990 respectively. After establishing a strong foothold in the laptop market in India, it is interesting to see Dell exploring the hyper-competitive smart phone market in India.
The smart phone segment in India has seen a dramatic turnaround from being the corporates’ delight to becoming an affordable gadget for the tech lovers. The competition is intense and has proved to be tough to deal with, even for supremely experienced players like Nokia. The segment is growing at an attractive 30 percent. With Apple, Nokia, Samsung and HTC fighting it our hard in this segment Dell is obviously a late entrant and will have to perform exceptionally to make a name.
Dell’s strategy is banked upon a) The upcoming rollout of 3G services in India which will further boost demand for smart phones, b) Dell’s established clientele in the laptop segment and it’s highly rated after sales support network and c) The growing acceptance of Google’s Android mobile platform in India.
Dell wishes to couple this launch with an extension of its retail network in India to enhance sales. The customer is at the winning end with tonnes of choices in the smart phone segment and Dell’s entrance will be another headache for Nokia which has been struggling lately.

Strategy Digest Volume 4 (Nov)

Britannia to enter bridge snack segment
Britannia Industries Ltd. is all set to launch its new product ‘Timepass’ which will mark its entry into the healthy bridge snack segment. Timepass will be a product with double baked bread and is expected to be launched in about three to four months.
Britannia believes that the bridge snack segment will be another foray into the healthy snack segment which is a big market in India now and is growing at a healthy rate. Britannia had recently also launched Nutrichoice diabetic buscuits, to fortify its market share in the healthy snacks segment.
Conde Nast launches 3rd magazine
Conde Nast just launched its third magazine, Conde Nast Traveller. This follows its two magazines, Vogue and GQ, which have been successful in the Indian market.
The reason behind the success of Conde Nast is its proper identification of its target customer. Conde Nast is targetting the affluent Indian, and all of its magazines are prices at over Rs. 100. Since its focus is solely on the upper-class segment, Conde Nast also finds it easier to get advertisers targetting the same segment.
Though it has competitors in the travel magazine market, most of their competitors are licensee brands which have a low focus on brand-building. On the other hand, Conde Nast it trying to build its brand by having high-class events and having a greater digital presence.
Canon India strengthens retail footprint
Canon India has strengthened its retail footprint by launching its first stand-alone store, Canon Image Square, in Noida. This store is an initiative towards its ambition of having 300 exclusive retail stores in India.
The company had previously launched exclusive non-selling stores called ‘Xperience Zones’ and ‘Image Lounges’ in a few tier I cities in India where consumers could experience the look and performance of the Canon Products.
This foray of Canon India is similar to the foray that Sony entered in the form of Sony World, which had worked well for Sony India. Also, exclusive retail stores can be a good supplement to multi-brand stores where consumers can finally purchase a Canon product after experiencing it at the exclusive Canon store.
ONGC to invest in renewable energy
ONGC will be investing Rs. 500 crore in renewable energy R&D to make the country less dependable on hydrocarbon reserves. India currently is highly dependent on hydrocarbon reserves and the non-conventional sources of energy are barely used.
Energy is a major infrastructural bottleneck for India and India’s growth rate is largely contingent upon the energy available. To be self-sustainable in energy consumption, ONGC intends to conduct R&D mostly in the solar, thermal, LED (light emitting diode) and fuel cells, which also result in less carbon emission.