Profit pool mapping for competitive advantage: Indian airline industry

Abstract

Indian Airline Industry is going through one of its toughest phases. Airlines are adding capacity with new fleet bought through huge capital investments. Yet, paradoxically, while the revenues of most of the players are increasing, many airlines are currently making losses. To understand this dynamic between revenues and profits an analysis of the Indian airline industry and its value chain activities is undertaken using the concept of 'Profit Pools'. Profit Pool Mapping gives an understanding of where the money is being made in the industry. The analysis done reveals that the activities that are conducive for integration by the airline operators and with deeper profit pools are areas like MRO and in-flight catering. An analysis of the Indian airline operators segment is done using the strategic frameworks like Porter's 5 forces model and Empty-Core markets. This segment is currently going through a cut throat competition which is quite different from the dynamics in a mature market or a declining market. It needs an understanding more from the point of view of competition. An application of Blue Ocean strategy's value innovation framework for understanding what needs to be done by each player in the face of competition leads us to strategies like finding newer markets (identifying and flying tourist routes), alliances with players from complementary industries like hotels, car rental companies and resorts, for an overall experience etc. A major role can be played by the government through regulation in allowing new entrants by enforcing stricter norms, incentivising regional players, improving infrastructure in tier 1 centers and also developing tier 2 and tier 3 airports. Also, full service carriers should provide new offerings to existing markets and low cost carriers should provide existing offering to newer markets.