Non Market Analysis of Indigo Airlines

Issues

Foreign Direct Investment (FDI), Safety, 5/20 rule

Institutions

Directorate General of Civil Aviation (DGCA), Ministry of Civil Aviation (MoCA)

Interests

The DGCA is the regulatory body under MoCA that endeavors to promote safe and efficient Air Transportation.

Information

Though India has adopted Open Sky policy, the Government has laid down the following regulations for the Civil Aviation Industry:

• FDI of up to 49 % and investment of up to 100 % is permitted by Non-resident Indians (NRI).
• There are a set of safety norms (Standard Recommended Practices) set by DGCA for operations of Aircrafts which are strict and high to maintain.
• 5/20 rule allows only those airlines which have a 20-aircraft fleet and have operated in the domestic sector for 5 years.

Strategy

• Indigo’s strategy is to utilize the FDI that has opened up and lobby against any decrease in the percentage of investment. In fact, one of the owner Rakesh Gangwal is an NRI.
• It should continually meet the safety norms by DGCA.
• Indigo along with Jet Airways is lobbying for keeping the 5/20 rule as it is since they have already served the rule and got the license to operate internationally

Issues

High Local Sales Tax, Rupee’s Value, Price of Automatic Transmission Fluid (ATF)

Institutions

Governments, Reserve Bank of India (RBI), Organization of Petroleum Exporting Countries (OPEC)

Interests

• The Governments Revenue is dependent on the tax.
• The careful management of money supply
• Maximization of revenue for a given demand by OPEC

Information

• High Local Sales Tax that is generally around 4.3% increases ATF prices
• Steep Rupee depreciation increases the cost of fuel.
• Fuel Price is highly unstable.

Strategy

Indigo Airlines tries to negotiate the sales tax which is comparatively higher than other countries. It also uses fuel hedging and technologies to control the cost of fuel.