The IndiGo Story: Inside the Upstart that Redefined Indian Aviation

by Shelley Vishwajeet

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.

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.

use of single engine for taxing on ground and other engineering/operations protocols.

As a further measure to control cost, IndiGo’s new batch fleet will have factory-fitted Sharklets. These are innovations in wing tip design whereby curved angular tips are used at the end of airframe wings instead of the conventional straight horizontal slant. Boeing calls it Winglets, while Airbus calls it Sharklets.

According to theflyingengineer.com which calculated the fuel cost saving in IndiGo’s Mumbai-Singapore flight for A320neo, it could be as much as $300,000 (Singapore dollars) in a year on this single route alone.

But if we consider a somewhat realistic aircraft utilisation, the savings can touch S$400,000 per year, per aircraft. With such savings, in the Indian scenario, the winglets pay back for themselves in around two and a half years or sooner in the event fuel prices rise further.101

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.

Average PLF from 2006–07 to 2012–13

IndiGo employed a technology called Aircraft Communications Addressing and Reporting

System (ACARS),

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.

IndiGo has always had a sizeable number of highly paid senior professionals. This could be raising IndiGo’s average payout, making it look quite respectable.

an analysis of data from 2012–2013 to 2016–2017 reveals that IndiGo’s average expenditure on this head was 11.01 per cent of overall operational cost, while SpiceJet, GoAir and Jet Airways spent 17.9, 11.2 and 16.55 per cent, respectively, during this phase.

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!

So What Really Worked in IndiGo’s Favour?

Growth Alone Doesn’t Ensure Profitability

By mid-2010, IndiGo had overtaken Air India to become the third largest domestic airline. A year later, it had overtaken Kingfisher to emerge as the second largest and by early 2013, it had overtaken Jet Airways to become the biggest domestic airline by passenger share. Meanwhile, Jet’s domestic share had declined from 28.1 per cent in 2009 to less than 26 per cent by 2013.

UAE happens to be the largest outbound market. Nearly 18.50 million—over 33.83 per cent of total international traffic—was to this country, with Dubai topping the chart.

Dollar earnings is also a major attraction to start international operations as most of the fleet lease payments are made in dollars. With rupee continuously depreciating against dollar, it does becomes attractive to earn in dollars.

But if it is a short-haul international operation, the dynamics change completely. In Europe, international flights have become an extension of domestic operations

as size of countries is small. The distance between two busy routes, London and Paris, is less than 400 kilometres. In India, two popular international destinations, Bangkok and Dubai, also qualify for short-haul operations (Delhi–Thiruvananthapuram is longer than Delhi–

Not all international destinations qualify as high margin routes. On the other hand, transatlantic routes, typically over 5,000 kilometres, are considered quite profitable, especially the ones connecting Europe and the USA. Long-haul operations also come with more class options which...

Even the British Airways’ mainstay has been long-haul international operations. On the other hand, Air India, which operates to around 120 international destinations out of its total 370 touchpoints, doesn’t make profit on the majority of international routes.

only three of Air India’s international routes—Cochin–Kozhikode–Jeddah, Kozhikode–Sharjah and Kolkata–Yangon—had made profit that year.161 So, profit also depends a lot on how an airline is able to strategize and leverage an opportunity against its cost structure.

The government’s main objective was to provide a protective cover to its own baby, Air India, from private sector competition in the profitable international routes. However, by default, it also became a shield for those private players which had qualified for international operations under this rule.

Five years is a long time in aviation.

One key reason for this action was that Jet had perhaps believed that its FSC model could not have posed an effective challenge to the new bunch of aggressive LCCs such as IndiGo, SpiceJet and GoAir, which

Thus, it opted to concentrate on international routes where it had no competition from private Indian carriers.

To a point, it turned out to be a good strategy as Jet eventually overtook Air India as the largest Indian op...

Jet’s international operations proved to be its saviour for a long time. But gobbling up Air Sahara at a heavy premium to delay challenges on the international front fro...

Soon after the Tata-SIA joint venture airline Vistara began its operations in January 2015, it unleashed the campaign

to get this inhibiting rule abolished.162

Under the new scheme, an airline with permission to fly national scheduled services could fly international routes if it allocated a minimum of twenty aircrafts or 20 per cent of its total fleet, whichever was higher, for domestic operations. The waiting period of five years was done away with.

By the end of 2016–2017, IndiGo had carried nearly two million passengers and had cornered 9.5 per cent of traffic share among Indian carriers. It had also become the number-one LCC serving international market to and from India. But its share remains much lower than the leader, Jet Airways. However, with Jet166 in serious financial167 trouble,168 it has a good opportunity to bridge the gap faster.

The recent management upheavals at IndiGo also have a lot to do with its international plans. It is believed in aviation circles that a key reason for Aditya Ghosh’s exit was his lack of experience in running international operations. IndiGo’s promoters did not wish to take any chance with the success of its phase-two strategy.

In 2010, IndiGo’s market share climbed to 18 per cent. By mid-2011, with 19.6 per cent market share, IndiGo had almost caught up with Kingfisher which was still the leader with 19.8 per cent. Jet Airways had 17.8 per cent, but together with JetLite’s 7.7 per cent, it still had 25.5 per cent overall market share. But Kingfisher was in serious financial muddle by now, and it had begun to lose altitude, rather alarmingly.

July 2012 was a defining month for IndiGo. Kingfisher, at this time, was counting its last breath. It had all but collapsed. By mid-July, IndiGo, with 27.2 per cent market share,172 flew past Jet Airways (19.4 per cent) and JetLite (7.2 per cent), combined to emerge as the new king of Indian sky.

Aditya Ghosh, the then president of IndiGo, had a somewhat muted but mature reaction on this milestone.

‘We have never chased market share. But being the largest airline in the world’s largest de...

The industry’s combined operational loss was pegged at ₹260 billion ($5.1 billion) for 2007–2010 period while the industry was staring at another loss of ₹100 billion ($2.0 billion) in 2011–2012.

Richard Branson, the founder of Virgin Atlantic and Virgin America, had once famously remarked, ‘If you want to be a millionaire, start with a billion dollars and launch a new airline!’

Well, the airline didn’t really make the millionaire out of the Billionaire Branson, but he realized after more than three taxing decades of wandering into this maze called aviation that it was beyond him to run an airline.

Branson began his exit journey by first selling Virgin America to Alaska Air Group for $2.6 billion176 in December 2016 and followed it up by giving up his management stake in Virgin Atlantic to Air France-KLM in July 2017. Virgin

Virgin was his second identity.

One doesn’t really know what the new owners will do to Virgin Atlantic, but well, Alaska Air did kill the brand Virgin America in April 2018,177 leaving Branson with a big heartburn.

Jet Airways’ founder Naresh Goyal had made it to the ‘billionaire’s club’ post Jet’s IPO in 2005, but today, he is nowhere on this coveted list.

Even the most astute and successful investor in the world, Warren Buffett, has burnt his fingers in airline stocks. To begin with, airline stocks were on his strict ‘Touch Them Not’ list.

As late as 2013, Buffett had maintained that the US airline industry was a ‘death-trap for investors’. But the impressive performance of the top US airlines in the last four years made ...