SpiceJet Case Study: How SpiceJet avoided being another Kingfisher Airlines

Spicejet Case Study

1SpiceJet Case Study

SpiceJet, a leading Indian aviation player, was on the verge of shutting shop few years back (2014). With delaying salaries, layoffs, delay in payment of statuary dues – Service Tax, TDS etc- in 2014, SpiceJet was struggling to survive. Here, in the SpiceJet Case Study, we discuss how the the airline ended up becoming the world’s best airline stock in 2017 from the turmoil.

2The Curious Case of SpiceJet – Issues and Problems

  1. Chennai based Sun Group acquired SpiceJet in 2010. The inconsistent profits were set off with investments by media baron Kalanithi Maran. Maran invested close to Rs 1500 cr in the airine and ended up owning 58% shares.
  2. The losses in the airline were still overlooked in a hope to loop in an overseas investor.
  3. SpiceJet was in talks with American private equity investors who could bail the airline out from immense losses. PE investors like TPG Capital, Indigo Partners etc- were keen to invest in the airline. However, when the deal was about to take shape, Dayanithi Maran, brother of the majority stakeholder Kalanithi Maran, was accused of misconduct by the CBI in the famous Aircel-Maxis case. The PE firms therefore backed out from SpiceJet investment.
  4. With no investors and burgeoning losses, SpiceJet was forced to return planes, cut man power and consequently cancelling flights. This made the airline to default on fuel payments, clearing vendors outstanding and other debt. SpiceJet defaults on salary payment a second timeSpiceJet asks 50 captains in its flight crew to leave in a month.
  5. DGCA came into action and prevented booking of tickets from more than 30 days and ensured immediate refund to passengers whose flights were cancelled.
  6. Cash inflows declined, travel agents, who used to deposit advances for bookings and then took refunds, now said no to deposits and on December 15, 2014, the SpiceJet management told the DGCA it was about to suspend operations.

3The Curious Case of SpiceJet – Action and Turnaround

  1. Kalanithi Maran sold its stake in the airline and a new management led by Ajay Singh came into force. Under the leadership of Ajay Singh, the airline proposed a new turnaround plan to Ministry of Aviation.
  2. The government had a vital role in bringing SpiceJet back to life. Aviation ministry wrote to AAI and oil companies asking them to allow credit facilities to SpiceJet and also allow the airline to stagger payments to clear its dues. Also, DGCA was asked to lift the 30 day ban on sale of tickets placed on the airline.
  3. Simultaneously, Singh himself met the oil companies to resume working with SpiceJet on part payment of their dues. The falling oil prices also helped.
  4. Singh identified that their problems were multiplying was because of ‘loss of trust’. The airline was paying a price of loss of trust amongst it customers, employees, vendors etc-. He identified that the only way to win the trust back was by resuming normal operations back. Therefore, Singh on getting the basics of the airline right – ensure that flights are taking off in time and interfaces like websites, counters at airport are working smoothly. SpiceJet strategically chose the holiday period to rollout the measures so that most of the customers can benefit and gain trust back again in the airline.
  5. SpiceJet also shut down five domestic and 3 international destinations to optimise their cost.
  6. Though sale offers continued, but the key dates – holidays, festivals etc- were kept outside the purview of the sale. Earlier, the offers were applicable across all dates hitting the revenues.

4SpiceJet in 2017 – Flying High

  1. SpiceJet case study tells us what an positive attitude and the right strategic moves can do. Today, the airline’s shares are hovering around Rs 125 each. In June, Bloomberg said it was the world’s best aviation stock this year with a 124% gain.
  2. SpiceJet is valued at Rs 7,400 crore, up from the Rs 650 crore it was valued at during its darkest hour in 2014. Rival Jet Airways Ltd, with a fleet double that of SpiceJet, is valued at Rs6,200 crore.
  3. Earlier this year, the airline ordered 100 fuel-efficient Boeing Max aircraft, adding to a previous order of 55 planes which will be delivered over the next decade and bring down its costs by another 5-10%.  It also has options to buy 50 more planes taking its order book to 205.

The SpiceJet Case Study is amongst the rarest instances where an airline has revived back from near closure levels. Prior to SpiceJet, players like Kingfisher Airline and Paramount Airways and Indus Airlines have already shut shops.

Loan Waiver Not a Solution to India’s Agriculture Problem

The deaths of five farmers in Madhya Pradesh has brought India’s Agriculture Problem once again to the editors desk across all forms of media. While the latest incident may have got the much needed attention, but the fact is that the crisis has been under the shackles for some time. Farmers across the nation have been demanding loan waivers to get out of the trouble. Lets have a look at what steered to such a dismal situation in Indian Agriculture and what is a sustainable solution to the problem.

1Lack of Government Attention in the sector has fuelled India’s Agriculture Problem

Agriculture in India has faced slowdown in the first 2 years of the BJP led government.

The national accounts (new series) data clearly demonstrates that agriculture is facing a severe slowdown. The net value added (NVA) in agriculture declined at 0.23% per annum in the first two years of the Bharatiya Janata Party (BJP)-led National Democratic Alliance (NDA) government. Even accounting for bumper production last year, gross value added (GVA) in agriculture has grown at 1.77% in the last three years.

Investments in Agriculture has been on a decline in India has faced slowdown in the first 2 years of the BJP led government fueling India’s Agriculture Problem further.

Data shows that investment in agriculture is declining at 0.8% per year at constant prices since 2010-11. For the first two years of the current government, investment in agriculture declined at 3.8% per annum. It declined from Rs2.84 trillion in 2013-14 to Rs2.63 trillion in 2015-16 at 2011-12 prices—the sharpest fall in more than two decades.

Minimal Increase in MSP (Minimum Support Price)

Not only was the growth of minimum support price (MSP) minimal, the central government refused to pay the usual bonus that the farmers were given. For crops such as pulses, the MSP announced was much lower than promised.

Demonetization Effect

The final nail in the coffin was the demonetization of high-value currency notes, which affected the purchasing capacity of market traders, forcing farmers to undertake distress sales. India’s Agriculture Problem

Short Term Solutions from the Government

The response of the government in the sector has never been proactive and has been focussing on the short term. Farm loan waivers are never a long term solution. Increasing MSP also benefits only a small section of farmers.

2Farmers have been struggling to keep up with changes

Increase in Input Costs

In the same period, input costs have increased. The big increase has come in fertiliser and seed prices, denting the profitability of farmers and complelling them to hunt for loans.

Change in Cropping Patterns

There has been a structural shift in cropping patterns with horticulture and cash crops dominating farm output. Today, the overall horticulture production is higher than food grain production. Most of these crops are outside the ambit of MSP operations and hence vulnerable to fluctuations in market prices.

3The Solution to India’s Agriculture Problem

Recognition of changing patterns in Indian Agriculture

The long-term solution has to first recognize the new reality of Indian agriculture as well the changing role of agriculture in rural incomes and growth. While reviving agriculture is necessary for revival of non-farm sector and rural jobs, the instruments required are not adequate to cover the uncertainties in a globalized context.

Dedicated Investment in Storage Capacities

With farmers resorting to a more lucrative but risky perishable horticulture and cash crops, government needs to invest in better and bigger storage capacities.

Improved Transportation Network, Farming Technology and Infrastructure

What is needed is not only better integration of farmers with markets and price intervention strategies for non-food crops, but also large investments in agriculture. These are essential for creating better marketing infrastructure, storage capacities, transportation network, farming technology, research for new crop varieties, extension services and above all irrigation.

Focus on Agricultural Research

R & D capacities are required to be pumped up in the field of agriculture. Also, norms of usage of GM (Genetically Modified) crops can be reconsidered and looked upon from a more liberal perspective.

While the government may offer a temporary solution to India’s Agriculture Problem by offering farm loan waivers, the crisis is not going away. The government should rather dedicate resources to step up investment in agricultural infrastructure and price support. Not only will it revive agriculture, it will also generate employment in the rural economy.

Marketing Examples of the Decoy Effect

We talked about the Decoy Effect and how Marketing Managers use it to mould consumer mindset the way they want in a previous post – What is Decoy Effect? Explanation with Example
It’s time that we see some real life examples of how companies are using the decoy effect to favour preference of the product they want to sell by flanking it between two other products of less importance to the firm.

Example # 1 – The Economist
The Decoy Effect phenomenon is a concept from the books of Economics and who know it better than the widely read magazine – The Economist. The publication cleverly devices the pricing of their print and digital subscription making the combo look the best deal amongst all. Here is how they price their subscription :
  1. Web Subscription – $59
  2. Print Subscription – $125
  3. Web and Print Subscription – $125

The first offer of $59 seemed reasonable. The second option (only print) seemed a bit expensive, but still ok. But what about the third option? Both Web and Print for the same price as the print-only subscription?

Dan Ariely, an Israeli American professor of psychology and behavioural economics and author of “Predictably Irrational“, tested this phenomenon with his MIT students where he asked them to choose a subscription. The results were:

  1. Web Subscription – $59 (16 students)
  2. Print Subscription – $125 (0 students)
  3. Web and Print Subscription – $125 (84 students)

Total revenue: $11,444

The majority of students selected the third option (dominating) and none of them selected the second option (the decoy). Knowing this, Ariely performed a second test and removed the decoy product. The results were:

  1. Web Subscription – $59 (68 students)
  2. Web and Print Subscription – $125 (32 students)

Total revenue: $8,012

This time, most of the students preferred the first subscription. By adding a decoy product, The Economist improved sales with 30%.

Example # 2 – Apple

Believe it or not, the world’s most renowned brand, Apple, also plays with its pricing to lure customers to buy their premium products. If you carefully study their product portfolio, one of the other product always plays as a decoy making customers choose a better version of the product which obviously is priced higher.

Below is what Apple has on offer for customers who want to buy an iPod Touch :

Marketing Examples of Decoy Effect

Now here is something which will definitely make you scratch your head while making a call to buy an iPod touch. When you want to double the storage capacity – going from 16GB to 32GB – you pay $70 extra and get more features, such as a 5MP iSight camera and iPod Touch Loop. However, when you want to double the capacity from 32GB to 64GB, you pay $100 more but don’t get extra features for it. Its almost a no brainer that the best-selling model of iPod Touch is the 32GB variant. You might conclude the 32GB version is the best value for money. Only a few would buy the 16GB version and even fewer would buy the 64GB version. The 16GB and the 64GB version act as the “price decoy” to make the 32GB version as the best option.

Example # 3 – The New York Times

Like The Economist, the New York Times also plays smart with their subscription offers :

Decoy Examples - New York

Compare the weekend deals and week deals separately.

Saturday-Sunday for $2.50 against the Extended Weekend (Fri-Sun) for $2.50 and Weekday (Mon-Fri) for $4.99 against Daily Delivery (7 days) for $4.99.

Does this mean that I get more editions of the newspaper for the same price, obviously not. So why did The New York Post add two more options? They added the first two options to make the last two options look so much better.

These are few of the many examples which you can witness around you. So next time you are tempted to buy a product look out for the decoys.

What is Decoy Effect? Explanation with Example

What is Decoy Effect? Explanation with Example

The decoy effect, popularly known as the asymmetrical dominance effect with economists, is a phenomenon where people tend to have a change in preference between two options when presented with a third option that is asymmetrically dominated. Though more loved by Economists, the decoy effect also plays a crucial role in making Marketing decisions. Many organizations religiously adhere to this human psychology while planning their product launches in a year. Even the most valuable brands in the world, including Apple, resort to this strategy while positioning their products.

Natural human behaviour, resulting from the decoy effect, is often exploited in pricing decisions and also deciding the volumes of the product to be introduced in the market. Companies introduce a third variant of a product which acts as a decoy to increase affinity of consumers towards the product which the company actually wants to sell. Also as a result, companies are also successful to push customers, who usually tend to buy the cheapest product, towards a more expensive product.

The Psychology behind Decoy Effect and how Marketing Managers use it to their benefit

Let’s try to understand it by a simple example where, say, you would like to buy a new MP3 player.

First and foremost, we identify the core proposition in the product. Say in case of MP3 players it may be: the storage capacity and the price – and then play around these two core offerings.

In the image below we have a proposition for two players. When put forward with the below choices, some consumers will prefer A for its greater storage capacity, while others will prefer B for its lower price.


Now let’s add a new MP3 player to our product proposition. MP3 Player C is more expensive than both A and B and has more storage than B but less than A.

Decoy Effect Example (2)


The addition of another product i.e. MP3 Player C – which buyers probably avoid (they can pay less for a model with more storage) – causes MP3 Player A, the dominating option, to be chosen more often than when we only had two choices. Because A is better than C in both respects, while B is only partially better than C, more consumers will prefer A now than before. MP3 Player C is the decoy product that will increase sales of A.

Now the point is that the company’s focus model is MP3 Player A and not C. The volumes of C in production will be low and will be positioned as a premium or flagship model whereas MP3 player A will be their hero or best-seller model.

Google’s strategy with Motorola and how they used it to fight Samsung

Samsung is giant. It employs 427,000 staff, has an annual turnover in excess of $270bn and assets of $600bn spread across over 80 business units. And Google just floored it twice using Motorola as a baseball bat.

Why ?

On the surface having 81 per cent of Android marketshare would seem to make Google and Samsung best buddies. Samsung has been the driving force behind Android’s meteoric growth and put Google mobile devices in pole position.

The problem is Samsung wanted too much credit. It wasn’t enough for Samsung to make the most popular Android phones and tablets, it had to hide Android – and consequently Google’s role in its achievement. It did this using ‘TouchWiz’, the company’s proprietary skin which painted over all aspects of Android leaving it unrecognizable. To the casual consumer they were buying ‘a Samsung’, Google’s role was largely unrecognized.

Then things got worse. Samsung began degrading Android performance by switching out vast parts of the software – phone dialer, calendar, email client, contacts, notification center, music and video player, voice control and much more – for its own apps. Reviews were largely negative with TouchWiz and its bloatware slowing down Android, wasting storage space and the replacement apps were seen as inferior or, worse still, needless gimmicks.

Samsung then exploited this further. It put TouchWiz on its smart TVs, another market it dominates, and began building its own Android rival – Tizen – which, thanks to its TouchWiz interface, looks identical to the casual observer. The long term strategy was clear: switch over to Tizen and take the majority of the handset market with it. Google had to act.

How ?

The ‘how’ was Motorola. On 15 August 2011 Google announced it had bought Motorola Mobility for $12.5bn in cash. With it Google acquired more than 20,000 mobile patents and publicly declared- ‘the purchase of the phone maker would not in any way compromise relationships with its handset partners… honestly, really, pinky swear.’

Of course Google didn’t expect handset partners to fully believe this and platitudes issued from them in reaction to the deal confirmed it. Should Google use Motorola to ramp up its own major handset business the market would be theirs. The phones would have stock Android and no-one, not even Samsung, could afford to subsidise their cost as Google can leveraging its mammoth advertising revenue.

The bait was set: obliteration by Google stock Android handsets unless Samsung stopped messing with Android. Google quietly showed it could walk the walk as well as it ramped up Nexus production and introduced the well-received Motorola X and Motorola G which stripped away almost all customisation from stock Android.

Samsung bit. On 27 January 2014 Google and Samsung signed a wide-ranging global patent deal which will last a decade. Buried within it was an agreement that Samsung would tone down TouchWiz, refocus on core Android apps over its own customisations and cancel more radical customisations such as its ‘Magazine UX’ interface. Two days later Google announced the sale of Motorola Mobility to Lenovo showing both agreements had been working in parallel.

The consequences

The smack down for Samsung is twofold.

Firstly, despite its size and dominance of the Android market, Samsung has been brought back into line. No longer will Samsung run roughshod over Android’s design, kick out its apps in favour of Samsung alternatives and hide Google’s hard work underneath. Indications of a low key Galaxy S5 launch suggest it will stand by its word.

Secondly, the jump off point for Samsung from Android to Tizen is no longer straightforward. With Android shining through more strongly in future Samsung handsets it won’t be a seamless switch from one to the other. If Samsung wants Tizen to succeed it will now have to be earned rather than snuck in under the radar.

All of which should be good news for Android users who will find it easier to move between handset makers when they upgrade while a stock Android experience (particularly with Android 4.4 KitKat’s optimisations) will make for faster, more responsive budget devices. Whether it gives smaller handset makers a greater chance to compete with the all-conquering Samsung, however, remains to be seen.

And what of Google’s supposed $10bn loss? It’s a misreported myth calculated by subtracting Motorola’s $2.91bn sale price from its $12.5bn purchase. What it misses are the $3.2bn Motorola had in cash, $2.4bn saved in deferred tax assets and two separate Motorola unit sales totalling $2.5bn in 2013. Factor in Lenovo’s purchase and Google has paid $1bn for what it retained: $5.5bn worth of Motorola patents and the company’s cutting edge research lab.

Source : Forbes US

15 Must Know Facts about Twitter

Twitter, which on Thursday revealed its plans to go public, came to life on March 21, 2006 when co-founder Jack Dorsey’s account (@jack) automatically sent out the first tweet, which read: “just setting up my twttr.”

Dorsey followed it up with the first “human-generated” tweet: “inviting coworkers.” More than 170 billion tweets have since gone out worldwide. Twitter said on Thursday that it had 218 million active users, as of June.

Some facts about a global phenomenon:

1. Justin Bieber (@justinbieber) has the most followers with 45,366,914 as of 2200 GMT Thursday, followed by Katy Perry (@katyperry) with 44,122,303 and Lady Gaga (@ladygaga) with 40,229,059.

2. US President Barack Obama (@barackobama) is fourth with 37,501,850 followers; the announcement of his re-election victory in November 2012 was re-tweeted more than 800,000 times.

3. The average Twitter user has 208 followers and spends 170 minutes on the site every month.

4. There are more than 200 million active Twitter users. Eighty percent of all users access Twitter on mobile devices.

5. About 20 million Twitter accounts are believed to be fake.

6. The hashtag (#) feature on Twitter which groups tweets by subject debuted in August 2007, having been proposed by a user.

7. In October 2009, Google and Microsoft began integrating tweets into their search products.

8. In January 2013, Twitter introduced Vine, which enabled users to make and tweet six-second looping videos. Some 12 million Vine videos are uploaded every day.

9. Twitter is based in San Francisco, with additional employees in New York, Chicago, Los Angeles and Washington. Its total payroll exceeds 900.

10. Prior to Thursday’s IPO announcement, many analysts valued Twitter at around $10 billion. By comparison, Facebook went public valued at $16 billion.

11. Twitter was incorporated in April 2007, the month after it stole the show at the influential South by Southwest technology and indie music festival in Austin, Texas.

12. It was co-founded by Biz Stone, Evan Williams and Jack Dorsey — @biz, @ev and @jack.

13. Asked by AFP in March 2011 why Twitter is such a hit, Stone replied: “A big part is that it is just very simple and connects people to other people they would not otherwise be connected to.”

14. The initial Twitter logo was created by Stone, a former graphic designer.

15. Twitter chief executive Dick Costolo is a former improvisational comedian.