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.
Staying focused
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.
Flyaway profits
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.
Global take-off
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.
Keywords: low cost carrier, IndiGo, domestic airline
My question is very simple if indigo claims that they made profit after
tax of 600-650 cr. than did they pay income tax @300-350 cr.(If anyone
has info pls share with us) If yes than their figures are believable other wise it is just a ad to their IPO as Reliance Power said (Power on )
Often companies seek to diversify and then fall prey to it. Indigo has stuck to its basics
of efficient transportation, which in today's world is all that matters. No customer wants
to swept of his feet with a five star service while on something as mundane as a business
trip. Indigo has got that right and created a niche for themselves.
While I cannot comment on the profitability and the financial guise if applied by their
accountants, the final verdict would only be in the long term to see whether this airline
has certainly made it big. For the time being its a winner.
IndiGo's business plan is the same as that of Southwest Airlines in the US. Southwest operates only Boeing 737s. People underestimate this decision. While it is good to have airlines that are size-specific to certain routes, it makes things difficult to re-schedule. Each airline has it's own training, safety and flying techniques. The staff has to be instructed in all of these which makes the staff difficult to reschedule in turn. That's the key point - flexibility. By making sure that their staff and planes are uniform - IndiGo and Southwest made their fleets more flexible for restructuring and rescheduling. The staff can be arranged in a matter of hours for a last minute reschedule. Of course, they lose out on BIG routes which need long-range airline models. Also, they might operate their shorter routes inefficiently. But they aim for the middle and they get the biggest chunk there.
The article fails to answer the question raised in the headline convincingly. While it is true that the airline is punctual, the planes are clean and the staff courteous, these alone are not enough to ensure profitability. Some other airlines can also claim these qualities.
Sale and leaseback is a smart accounting way to show profits and has been widely used by companies in other industries. But such profits are not sustainable and unless a company keeps selling its assets at a profit and leasing them back from the financier. This is financial engineering and not operational profits. The author should have researched the subject better and tried to get details of the financial performance. The article looks like a puff piece that The Hindu should not attempt doing.
Good article. Include teh following : Attention to details: 1) Well designed innovative Boarding ramp instead of Steps enabling Strolleys, 2) Step up for Buses enabling eldrely and those with Knee troubles easy,safe and comfortable bus boarding, 3) Avoudance od messy stickers on baggage. Many more. Unbeleivable first time innovations in an Indian Carrier. Truly world class. Welldone and best wishes.
Well written article about IndiGo and its the business model.
it is an ad for the airline
Is this paid advertisement? I know it isn't but then the way it has been written, it seems less of a comparison between them and the others and more of a campaign for Indigo.
Surely the editors could've paid more attention to this.
This article gives a lot of factual information about the Indigo
airlines but it nowhere focuses how exactly it is different from the
other airlines? For example, if Indigo uses ACARS, do the other airlines
not use it? Do the other airlines do not strive for being on time? Do
the others not take care of saving oil?
Thank you Hindu for publishing an uplifting story about Indian enterprise in a difficult industry like civil aviation in these trying times. Congratulations to IndoGo management and employees for a job well done so far. I hope we will someday see IndiGo planes in the US airports. As of now it is disheartening to see smaller countries or city states like Singapore or Dubai having world class airlines that one can feel proud about except India even though it was one of the early pioneers of civil aviation in Asia. Let Tata run Air India, I'm sure they will restore it back to its glory days!
I started flying by Indigo this year and have flown in Mumbai- Delhi, Mumbai Vizag
and Mumbai - Bangalore sector. I am quite impressed by their aircraft quality, and
service. The only grouse that I have is that their inflight service is pathetically slow. I
have tried to beat it by taking seats in 1-7 range if available. As for the profits that
they make, I am not sure and hope they are being true with the figures. A cash flow
analysis would clear all doubts.
Congratulations to IndiGo management. It is wonderful to read
successful business stories, particularly in the devastated airlines
sector.
You do not need me to tell you to watch out for dangers of (i) over-
trading: expanding too fast before management/operational
strength/working capital are all in place (ii) misleading PR: creating
and then believing, but not delivering, fancy slogans (iii) seriously
wasteful expenditure on "corporate ego symbols": fancy
headquarters/status symbols/staff perks/pretty models etc (iv)
diversifying into unrelated businesses: please 'stick to only what you
do, and do it very well'.
India's domestic customers generally get a very poor deal in terms of
schedule, connectivity, service etc; the international services are
very weak; the international to domestic connection totally ignored;
virtually no brand loyalty making customer-poaching just too easy. The
opportunities, given explosive customer demand, are almost limitless!
Overhaul is overdue; good luck.
Kudos to Indigo airlines for their consistent standard in connecting more Indian cities. It is our wish more southern cities like Tagore, Trichy, Madurai etc must be covered and flying time must be maintained without late arrivals etc which will improve the patronage of the airlines and then they can move to international sector. Best wishes for the board of the airlines.
What about their weighing machines at the Airports ? Some of them are wrongly graduated. I could easily lift a travel bag containing 15 kg and I make it sure I do not carry more than that but when it was weighed it showed 22kg.at the airport and when I challenged the weighing machine my baggage was accepted without payment of extra charges.
Indigo is indeed professional in its services and it is heartening that an Indian airlines in India is functioning well. Their on-time culture is something India and Indians should start imbibing in larger numbers in other areas in our public life. I sincerely hope they continue to succeed. I hope the government will not interfere with its success and pull it down - as it did with another excellent India airlines in the past - Air India.
Indigo got it right, but that doesn't make it invincible. Its just business after all. In future there will be international airlines which will give high quality service at a reasonable price. Its just matter of time.
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