Why is IndiGo the only airline to stay afloat in an industry where many seasoned carriers are crash-landing? Swati Daftuar has the answers.
Numbers speak. It’s been 51 days (at the time of going to press) of the Air India pilots’ strike.
As of February 2012, Kingfisher Airlines has grounded 30 flights and cancelled nearly 50 per cent of its scheduled departures.
The aviation industry is facing a loss of around Rs.7,700 crore in the year ending March, as per the consulting firm Centre for Asia Pacific Aviation (CAPA).
Even as you read this, these numbers are rising.
But there are other numbers. The industry, which flies five million people a month today, is expected to grow 7.5 times by 2020. That’s big business with huge, yet unexplored, potential. And in India, as elsewhere, aviation is a multiplayer industry.
Right now, though, there is just one player who is scoring all the goals; the only airline making profits even as competitors flounder with frozen accounts, grounded planes, and massive losses. That player is IndiGo. Consider these numbers.
An unlisted company, IndiGo is not required to publish its profits and revenues, but for fiscal year 2011, it saw a 48 per cent growth in revenues and a profit of Rs.650 crore. That year, with the exception of SpiceJet, all other Indian airlines faced losses.
In May 2011, IndiGo handled over one million passengers for the first time, and has since replicated the feat several times, with over 1.1 million passengers in both January and February of this year, according to the Directorate General of Civil Aviation’s (DGCA) data.
Quite predictably, the airline finds itself under the microscope. If you do something well, people notice. If they notice, they scrutinise. And chances are they are waiting for you to stumble. The country is watching, disbelievingly, as this six-year-old, a baby in the business really, takes giant leaps almost immediately after it has learnt to walk.
It doesn’t take long to reach the one obvious conclusion. There is something that is making IndiGo tick, and tick well. And just what that is, is the story that is fascinating the nation.
IndiGo was set up in early 2006 by Rakesh Gangwal and Rahul Bhatia of InterGlobe Enterprises, with InterGlobe as the parent company holding 51.12 per cent of the stake while 48 per cent is held by Rakesh Gangwal’s Caelum Investments, a Virginia, US-based company. “Low cost does not mean low quality,” is something Aditya Ghosh, President, IndiGo, has been heard saying repeatedly. And it’s a lesson that his low-cost carrier has obviously learnt well.
Many reasons are trotted out for the success but there are some moves that IndiGo has played just right. Kapil Kaul, regional head, Centre for Asia-Pacific Aviation (CAPA), gets it spot on when he says that one of the chief reasons for IndiGo’s success is its sharp focus — “on-time performance, clean, neat aircraft, and good service”.
See this early example. Even before starting operations in mid-2006, Indigo placed a firm order for 100 Airbus A320 aircraft in June 2005, an order that gave it a huge pricing advantage. It followed this up by adopting, for the first time in India, the sale and lease-back arrangement, under which it sells planes back to a leasing company, keeping its balance sheet light and its fleet younger. The airline then acquired parking lots in Delhi and Mumbai and, by the time the first Indigo flight was announced, it had already scheduled the first 20 aircraft.
IndiGo started life as a low-cost carrier and has stayed there firmly, sticking to its business model even in the worst economic crises, a move that has paid off brilliantly. Paid-for on-board meals, a single flying class with no-frills service, high aircraft utilisation, and optimal use of space (150 seats to the 190 that a full-fare airline carries) are just some of the cost control methods that IndiGo uses.
Aircraft utilisation is maximised by cutting turnaround time, which also reduces fuel burning. With oil prices rising sharply, every bit helps. By not serving hot meals on board, IndiGo carries no heavy equipment and cutlery, thus lightening the aircraft and allowing for less fuel burn. Besides, the airline also employs far fewer people, with one of the industry’s leanest work forces.
Back to basics
With a clean business plan, the airline then concentrated on the basics — on-time performance, clean aircraft, and good onboard service. Says Ghosh: “IndiGo stands for three things — being on time, being courteous and hassle-free, and offering low fares”.
In India, where airlines compete with the much cheaper options of rail and road travel, it is usually the time advantage that attracts passengers to planes, and a four-hour delay for a 55 minute flight can be disastrous. IndiGo has carved out a reputation for flawless “On Time Performance”, earning itself some serious brownie points and an average on-time record of an amazing 90 per cent.
How does it do it? By using a technology called ACARS (Aircraft Communications Addressing And Reporting System). In layman’s language, this means constant radio and satellite communication between aircraft and ground stations. Every plane in the fleet is fitted with ACARS. Before every departure, an automatic message is triggered from aircraft to control centre and the departure time recorded immediately. Similarly, the moment the flight lands an automatic message is triggered from aircraft to control centre. These timings are recorded “real time” and without human intervention.
While ACARS might run without human intervention, Ghosh believes that IndiGo is what it is today because of the team he works with. “That’s not just the leadership team in Gurgaon but all 5,400 of us, spread across the country,” says Ghosh. IndiGo is taking this emphasis on personnel training very seriously, something that is reflected by its business success.
The iFly learning and development team at Indigo’s leadership academy is where the crew trains, and there are numerous methods available to equip employees to better do their jobs. There is standard classroom or instructor-led training, and then there is on-the-job training.
“For us, On-Time and Hassle-Free are more internal brands than external brands. It’s not just about On-Time flights but about on-time meetings, on-time salaries, on-time hiring, promotions, increments, and bonuses,” reiterates Ghosh. Similarly, when IndiGo says hassle-free, it refers to making the company a hassle-free place to work in. “For four years in a row we have been named one of the Top 50 companies to work for in India and the best in the transportation industry,” says Ghosh proudly.
Indigo is in an enviable position, slowly but surely outclassing the biggies in the business, filling the vacuum created by cancelled flights and rising fares. Given that India is one of the most underpenetrated airline markets in the world, IndiGo’s potential for growth is huge. Already, its flights are the most utilised, with an average load factor of over 80 per cent, sure sign of its profitability.
While a part of its profits is explained by the sale and leaseback policy, there are other factors at work too. To begin with, using just one type of aircraft has its benefits, and Indigo has chosen to stick to the world’s best-selling single-aisle aircraft, the Airbus A320. By the end of the year, IndiGo will have added 60 aircraft to its existing fleet of 57. “Our recent deal with Airbus (signed in 2011) for 180 eco-efficient Airbus A320 aircraft, of which 150 will be the neo variety and 30 will be standard A320s, is the largest single-company order for large jets in commercial aviation history. This deal also makes IndiGo a launch customer for the A320neo,” says Ghosh.
The A320neo, available from 2016, incorporates a more efficient engine and large wing-tip devices called Sharklets that deliver significant fuel savings of up to 15 per cent, which represents savings of over 400,000 US Gal of fuel and up to 3,600 tonnes of CO 2 annually per aircraft. In addition, the A320neo provides a double-digit reduction in NOx emissions and reduced engine noise. “Reducing costs and further improving our environmental performance were key to our decision to go for the A320neo. We believe our fleet will set a benchmark and lead the way to a more sustainable mode of flying,” says Ghosh.
The launch of international operations in 2011 has opened up a new chapter for IndiGo. Analysts have expressed doubts about whether an airline that’s by and large a domestic flyer will be able to survive the global market. And it’s early days yet, but the carrier is steadily making inroads in its own inimitable fashion. “The endeavour is to ensure that we can provide sustainable low fares over a long period of time on the existing routes: Delhi-Dubai, Delhi-Bangkok, Delhi-Singapore, Delhi- Kathmandu and Mumbai-Dubai, Mumbai-Singapore, Mumbai-Bangkok, Mumbai-Muscat,” says Ghosh.
The airline recently announced an expansion to these routes from August this year. Plus, its 6E line will operate flights from Hyderabad, Chennai and Kochi to Dubai. In addition, it will start its second daily and direct flight in the Delhi- Dubai and Delhi-Bangkok sectors. “IndiGo will offer an introductory return fare of Rs.11,200 on the new flights,” says Ghosh.
Besides, IndiGo added Visakhapatnam to its domestic destinations this year. “We plan to add more flights and we’ve enhanced connectivity on new routes such as Bangalore to Jaipur and Lucknow. We are also going to connect Ahmedabad with Goa,” says Ghosh. As of now, IndiGo’s most frequent route is Delhi-Mumbai, followed by Bengaluru-Delhi, Delhi-Kolkata and Delhi-Lucknow.
It’s no secret that IndiGo has faced its share of setbacks, with the DGCA’s January 2012 report of a violation of mandatory safety norms. While it’s impossible to get everything right, IndiGo seems to be coping quite well, managing to stay in the air in an industry that is looking quite dismally grounded at the moment.
The low-cost carrier might not offer any frequent flyer programmes, but it has a huge share of loyal customers who swear by its performance. And if it can weather the gathering storm of fuel prices, high taxes, airport fees and the weakening rupee, it should be able to leave competition way behind its vapour trail.
Touch of Indigo
Late last year, IndiGo ramped up its style quotient with a new look for its crew. The airline partnered with fashion designer Rajesh Pratap Singh and stylist Ambika Pillai for the navy-blue outfits with a touch of indigo. Design inputs were taken from in-flight crew and senior management to create a single piece tunic to address the identified ‘on the job’ requirements. Hairstyle and make-up was also standardised to get a global look.