The IndiGo Story: Inside the Upstart that Redefined Indian Aviation

by Shelley Vishwajeet

With IndiGo’s mega order, Airbus was back with a bang. One can thus understand why it was so keen to conclude a deal with an airline which had neither commenced operation nor was known to have deep pockets. It was a win-win deal for both parties.

There were some important regulatory developments too that had taken place prior to IndiGo-commenced operations. In 2004, the government announced a policy called 5/20 Rule,78 which stipulated that private airlines had to complete a minimum of five years of flying and had to have a fleet size of at least 20 aircrafts to be eligible to get permission for international operations. In spirit, the 5/20 Rule was somewhat similar to Japan’s 45/47 Rule in the 1970s and 1980s whereby the government had reserved certain domestic and international routes for its national carrier. Similarly, the 5/20 Rule had deep implications for fair competition. It provided a safety net to government airlines in lucrative international operations. It also gave a protective cushion to early licensees, such as Jet Airways, from immediate competition and provided them monopolistic control over international routes. By 2005, two private airlines—Jet Airways and Air Sahara (Sahara Airlines had rebranded itself as Air Sahara in 2000)—had been given the permission to fly to international destinations. One of the main reasons for Kingfisher going down was the fact that it was in a tearing hurry to start international operations, believing it to be its panacea for its financial woes while also being driven by the prestige of it. Thus, it stretched itself financially to acquire Air Deccan in 2008 which by then had become eligible for international operations by virtue of its birth in 2003. The price paid by...

Patel’s tenure79 would be remembered as the best of times and the worst of times for Indian aviation!80

So, by the time IndiGo arrived, there were seven major airlines ready to give it competition. The list included one government airline—Indian Airlines, three full-service private airlines—Jet Airways, Air Sahara and Kingfisher, and three LCCs—Air Deccan, GoAir and SpiceJet. IndiGo appeared to be the weakest among them all.

Surprisingly, IndiGo has never had a vision or mission statement—it still does not.

The idea of IndiGo was based on three simple but deep-rooted propositions which were neither unique to IndiGo, nor was this airline the first one to have imbibed them into its business philosophy. IndiGo’s product proposition and operational strategy has been employed before by airlines such as Southwest, Ryanair, easyJet and AirAsia.

IndiGo didn’t do anything different, but did the same things differently. It was how it went about implementing its basic business strategy that won the day. The three pillars on which IndiGo was built and continues to adhere to are: (i) On-time performance (ii) Low-cost connectivity (iii) High-service standard

IndiGo was always particular about on-time performance, making it one of its key USPs. It also hyped up its punctuality mantra by repeated announcements before landing about how its flight had arrived minutes earlier than scheduled. IndiGo announcers often went overboard on this count but then it helped them build a good reputation in the long run.

IndiGo was always conscious to communicate that low cost doesn’t mean cheap. So, its cabin crew and support staff were always smart, prim and proper.

Aviation watchers unanimously agree that the consistency with which IndiGo delivered on its three key promises made it the first choice of Indian flyers. Indeed, this consistency has not been replicated by any other airline in India. It was this quality that distinguished IndiGo from its peers.

Kingfisher was trampled because of its mounting debt and rising finance cost while IndiGo ensured stringent operational and financial management and a disciplined execution of its low-cost model.88

Cost Heads and Their Impact The major cost heads of airline operations and their relative floating weightage are as follow: A. Fuel cost (ATF): 35–45 per cent B. Lease and rentals (finance cost): 15–20 per cent C. Maintenance (MRO): 7–12 per cent D. User charges (airport charges + passenger services): 10–15 per cent E. HR + administrative cost: 10–20 per cent F. Ticketing, sales and promotions: 5–10 per cent G. Other operating expenses (miscellaneous): 5–10 per cent

IndiGo’s choice of its fleet—Airbus A320—was a well thought of exercise to keep its finance and operational costs down.

It began by deciding to have a single class of aircraft to reduce maintenance costs and other hassles associating with owning multi-class fleet, and to build a better relationship with the aircraft supplier. The first bulk order of 100 aircrafts did give it an unprecedented acquisition cost advantage over the competition as it lowered its initial finance burden and spread the payment over a fairly long period of time, while ensuring a steady supply of planes even when demand for planes picked up.

The Airbus A320 is regarded as the most fuel-efficient commercial aircraft94 in its class and this is one edge Airbus doesn’t wish to cede to Boeing at any cost.95 So, IndiGo did not opt for Airbus A320 simply because they were getting a good bargain, but largely because it was the cheapest aircraft to fly.

Lower weight translates into higher fuel efficiency. So, to make its aircrafts as light as possible, IndiGo opted for lighter seats in its fleet.

As fuel can constitute any where between 35–45 per cent of a commercial aircraft operational cost, controlling fuel cost is a priority for any low-cost airline. IndiGo has adopted conservation of fuel consumption policies which are inculcated in all pilots and engineering staff training procedures.

Even in 2017, over eleven years after it started its first flight, IndiGo has one of the youngest fleets of any LCC globally.98 So, what does this imply? More fuel efficiency and lower maintenance costs. It also means better high flight dispatch reliability and higher passenger appeal. A young fleet has not only helped IndiGo control costs, but has enhanced its brand appeal for flyers.

Sharklets are supposed to reduce fuel burn by up to an additional 3.5 per cent on long routes

Sharklets bring additional advantages such as payload-range benefits, increased lift-to-drag ratio, higher available take-off weights, better take-off performance and better rate-of-climb among others.100

IndiGo and AirAsia are among the first airliners to get the delivery of the initial A320s with Sharklets. IndiGo has ordered 430 Airbus A320neo aircraft, 22 of which have been delivered by June 2017. The current controversy over engine troubles apart, if we just take into account the fuel savings, A320neo offers great advantages.

If we take the fleet cost as cumulative cost of (a) flight operations, (b) flight equipment maintenance and overhaul and (c) depreciation and amortization cost, then IndiGo did not really gain much advantage over competition on this account. Its operational cost related to purely fleet and flying expenses were nearly the same as other LCCs such as SpiceJet and GoAir, while Jet Airways had a much lower cost. One possible reason for Jet’s significantly lower cost could be that it had already paid off much for the fleet being in the market for much longer.

Aircrafts are the core revenue earning assets for an airline. Everything else revolves around it. Higher the number of flying hours or higher the fleet utilization, higher will be the revenue; assuming other factors to be constant. Higher fleet utilization is a combination of two factors. On one hand, there has to be higher passenger load factor (PLF) per flight, i.e., more number of revenue passengers per flight means more revenue for the airline. If one airline is flying with 70 per cent passenger capacity and the other with 80 per cent on the same route and charging the same fare, the one with higher seat occupancy will earn more from the flight. The second factor relates to the number of hours the flying machine is working every day. Because more it runs, more money it will make, with the other things being the same.

Coming to flying hours per day, a higher run requires faster turnround time. Here, IndiGo has diligently followed the proven practices employed by successful LCC peers around the world, which requires the flight to receive guests in as little time as possible for the next flight.

IndiGo has the lowest count of employees per aircraft at 110. SpiceJet and Jet Airways have more than 140 employees per aircraft, while GoAir has 120. Now, whether this is stretching too far depends on how well-trained the employees are and how smooth are the other functions. Though IndiGo appears to be stretching this a bit too far, it does give itself the required savings.

No other budget airline in India has direct linkages with hospitality properties.

With 15 state-of-the-art global delivery centres, InterGlobe Technologies (IGT) has emerged as a leading provider of IT, business process management and digital solutions. IGT specializes in providing comprehensive and customizable solutions for a differentiated customer experience, enhanced business process management and domain driven technology management.

The airline management division of IGE specializes in providing market entry strategy, sales and marketing, legal and regulatory support, recruitment and staffing as well as cargo management.

Indian pilots had to go abroad, to mostly expensive European centres, to undertake advanced type rating pilot training. Often, an airline had to bear the entire cost or part of the cost, thus making MRO services and pilot’s training a major expense for an airline. Here too, IndiGo gets in-house support, which helps it train and pick up the best candidates for cabin support and ground handling.

Going by the wide array of activities that IGE is involved in and given the fact that Rahul Bhatia is always looking out for more businesses to get into, one never knows, tomorrow, he could be building airports too!

Three things stand out in the case of IndiGo which catapulted it ahead of competition: (a) Steadfast adherence to cost optimization goals (b) Consistency of performance (c) Managing to do more with less.

Right from the beginning, IndiGo ensured industry-leading on-time performance which gained it respectability among flyers. And it ensured that despite being a low-cost offering, it was never seen as cheap or sloppy in any of its interfaces with flyers. Its staff was smartly dressed, courteous and enthusiastic, things on which LCC pioneer Air Deccan had severely floundered. All this resulted in making IndiGo a preferred airline and its financial performance better than the competition.

by the end, the entire Kingfisher story had become more a saga of financial scandal than a tale of business failure.

Kingfisher Airlines started off as an all-economy, single-class configuration aircraft with food and entertainment systems. But just after a year of operation, it changed track and started projecting itself as a full-service upmarket airline. It also changed the cabin configuration while introducing business class and reducing the overall seat count.

Kingfisher made too many changes in their business model and strategies and that led to strategic weakness.’

You don’t always end up making money simply because the market is exploding. If the commercial matrix is not right, one can lose money faster than one will in a static or downhill market.

Kingfisher’s high-cost, full-service model also did it in. It needed to extract more premiums from flyers to cover the cost but there was a limit to which a flyer would cough up money for the extra frills or thrills. Everyone loves flying king-size but not paying king-size.

A big problem with Kingfisher was that it never really had a professional management. Nigel Harwood was its CEO for the first year of its operations, but that was about all. Kingfisher always remained a one-man show unlike the professional and team-managed IndiGo. Mallya always believed that he was sufficient to manage the airline all by himself. By the time creditors forced him to bring in a professional CEO, Sanjay Aggarwal, in September 2010, it was too late. Commenting on the affairs of airline, aviation analyst Mohan Ranganathan pointed out, ‘Things went out of control further because Kingfisher never had a professional airline management in place.’125